Eurozone Banks Expect Credit Standards On Business, Home Loans To Tighten

The European Central Bank warned Tuesday (January 22) that eurozone banks are planning on tightening credit standards when it comes to business and housing loans during the first three months of the new year.

According to a report in Reuters citing the European Central Bank’s quarterly survey of the EU leading banks, the eurozone banks also expected to see a slowdown in demand for loans. “Net demand for loans continued to increase (in the fourth quarter), but banks expect some moderation in demand over the next three months,” the ECB said in a survey of 147 lenders, reported Reuters. The ECB noted that in the last quarter of 2018 credit standards were stable for mortgages and business loans but tighter for consumer credit.  For the first three months of 2019, the banks expect credit standards to tighten slightly for loans to businesses and housing loans. The ECB noted the banks expect credit standards for consumer credit and other lending to households to remain the same in 2019.

The commentary comes as the European Central Bank has ended its practice of buying $3 trillion of public and private bonds during a span of four years, which drove the cost of borrowing to a record low. The move was aimed at boosting borrowing and thus spending to increase inflation. But with the scheme now ending, there are concerns that borrowing costs could increase at the same time as a decline in economic growth, noted the report.  “Given the extended period over which credit standards have been easing, bank lending conditions continue to support loan growth,” the ECB  said in the report, according to Reuters. “These developments follow a considerable overall net easing of credit standards since 2014.”

The commentary comes as Euro bank stocks had a rough going in 2018. With the banks suffering from low-profit margins, aging business models, negative interest rates and the Brexit chaos, investors have sold off shares of bank stocks in droves, losing $380 billion last year. The banks ended the year with every single bank in Europe trading underneath book value.