Net demand for loans to businesses in the Eurozone area reached their lowest level in six years at the end of 2019, that’s according to the latest Euro Area Bank Lending Survey (BLS) from the European Central Bank (ECB). It is the first time a decrease in demand for enterprise loans has been recorded since the fourth quarter of 2013.
The decrease in demand came despite a further reduction in the ECB’s main interest rate, and the expectation from banks across the Eurozone that demand would remain stable.
Business growth in the Eurozone remains slow, fuelled by global trade tensions.
According to the ECB, the decline in business loan applications ‘Was broadly based across a number of larger and smaller euro area countries. Demand for loans to enterprises continued to be supported by the low general level of interest rates and, to a lesser extent, M&A activities. In contrast, financing needs for fixed investment ceased to contribute positively to firms’ loan demand.’
Meanwhile, demand for mortgages continued to increase in the last quarter of 2019, particularly in Germany, France and Italy. According to the survey this was ‘driven mainly by the low general level of interest rates. Favourable housing market prospects and consumer confidence also contributed positively to the demand.’
The ECB says credit standards for mortgages are expected to be tightened in 2020.
Some economists fear the creation of a housing bubble in the Eurozone area as a result of low interest rates and high property values.
The survey says, ‘Euro area banks reported that regulatory or supervisory action continued to have a strengthening impact on their capital positions in the second half of 2019, as well as a tightening impact on credit standards across all loan categories.’
It says, ‘Respondent banks also reported that non-performing loans (NPLs) had a small tightening impact on credit standards for loans to enterprises and consumer credit in the second half of 2019.’
The Euro Area Bank Lending Survey is conducted four times a year and was developed by the Euro System in order to improve its understanding of banks’ lending behaviour in the euro area. The latest survey details changes observed in the fourth quarter of 2019 and expected changes in the first quarter of 2020.
