European credit supply and demand crater

ECB Bank Lending Survey out last night.

In the April 2023 BLS, euro area banks indicated that their credit standards for loans or credit lines to enterprises tightened further substantially in the first quarter of 2023. From a historical perspective, the pace of net tightening in credit standards remained at the highest level since the euro area sovereign debt crisis in 2011. The tightening was stronger than banks had expected in the previous quarter and points to a persistent weakening of loan dynamics. Risks related to the economic outlook and firm-specific situation remained the main driver of the tightening of credit standards, while banks’ lower risk tolerance also contributed. The tightening impact of banks’ cost of funds and balance sheet situation on credit standards for loans to firms remained contained and broadly unchanged compared with the previous quarter. In the second quarter of 2023, euro area banks expect a further, though more moderate tightening for loans to firms.

Banks also reported a further substantial net tightening of credit standards for housing loans in the first quarter of 2023, while the net tightening became less pronounced for consumer credit. The net tightening of credit standards on housing loans was mainly owing to banks’ higher risk perceptions and lower risk tolerance, while the tightening contribution of banks’ cost of funds and balance sheet constraints remained contained. In the second quarter of 2023, euro area banks expect a further, though more moderate, net tightening for loans to households for house purchase and a further net tightening at a similar pace as in the first quarter for consumer credit.