Eurozone banks tighten lending conditions further
FRANKFURT: Eurozone banks further tightened conditions for approving loans in the fourth quarter of 2020, a European Central Bank survey showed yesterday, as a resurgence of Covid-19 clouded the outlook.
Credit standards-the yardstick that banks use to grant loans to companies and consumers-became stricter in the last three months of the year as financial institutions cited the “deterioration of the general economic outlook, increased credit risk of borrowers” and a “lower risk tolerance”, an ECB statement said. In the first three months of 2021, banks expect credit standards to tighten even more, the central bank said, suggesting that they don’t expect an imminent recovery from the latest wave of the coronavirus.
One in four of the 143 banks surveyed toughened their criteria to firms in the quarter, compared with one in five that had tightened criteria in the previous three-month period. For loans to companies, the fourth quarter “saw the biggest tightening since the region’s debt crisis, as banks’ perceptions of risk rose”, commented Jack Allen-Reynolds at Capital Economics.
Meanwhile criteria for loans to households for consumer purchases also tightened, but at a lighter pace than in the previous quarters of 2020, the central bank said. Credit conditions tightened for firms and consumers in France, Spain and Germany, but remained stable in Italy, the ECB said.
Company demand for loans declined in the quarter meanwhile, continuing a drop that began after an alltime high in the second quarter-during the first wave of the pandemic. Demand for loans to firms is expected to increase in the next few months as companies seek financing to withstand the impact of the pandemic, while for households, banks expect it to fall.
The survey comes ahead of a key ECB meeting tomorrow, when the bank is expected to keep its monetary stimulus policy unchanged. The ECB has already taken unprecedented action to counter effects of the pandemic, rolling out a 1.85 trillion euro ($2.2 trillion) emergency bond-buying program to keep borrowing costs low and encourage lending. The survey’s results “will reinforce ECB policymakers’ resolve to keep monetary conditions extremely loose,” Allen-Reynolds said. Meanwhile, German investor sentiment rose in January as confidence in the country’s export strength outweighed jitters over extended coronavirus measures, data showed yesterday.
The ZEW institute’s monthly barometer measuring economic expectations in Europe’s largest economy climbed to 61.8 points from 55.0 points in November. “Despite the uncertainty about the further course of the lockdown, the economic outlook for the German economy has improved slightly,” said ZEW President Achim Wambach. The survey showed that “export expectations in particular have risen significantly,” Wambach added. While Germany’s vaccination rollout is picking up steam, with more than one million doses administered, concerns persist over the spread of variants first discovered in Britain and South Africa.
In December, Germany tightened restrictions to curb the pandemic, including shutting most shops after a previous shutdown closed restaurants, bars, gyms and cultural activities. Germany’s current lockdown still allows for factories and manufacturing businesses to remain open. Data for November, the most recent available, showed industrial production and orders rose, helped by Germany’s reliance on its export trade with a rebounding China. ZEW’s figure, based on a survey of 198 financial market experts, came in above analysts’ expectations of 60.0, according to a poll by FactSet. However, it did not reach the high of 77.4 points logged in September, ahead of the second wave of the pandemic. Alongside growing investor confidence, ZEW’s assessment of the current economic situation in Germany improved marginally, increasing 0.1 points to minus 66.4 points-still deep in negative territory. — AFP