Decline in credit demand bottoming out – ECB report

The decline in demand for credit, seen in the past year or so in the eurozone, may be coming to an end on the heels of peaking interest rates and a less pessimistic economic outlook, according to the European Central Bank’s quarterly Bank Lending Survey, published on Tuesday.

The report, which covers the fourth quarter of 2023, shows that banks again reported net decreases in demand from firms for loans or drawing of credit lines, demand for housing loans and demand for consumer credit and other lending to households. Across loan categories, the general level of interest rates was cited as the reason behind the decline in demand.

The report also showed that lenders continued to tighten access to credit in the review period but fewer banks did so than at any point in the previous two years and less than the banks themselves had forecasted three months earlier.

Meanwhile in the US, a report published on Monday by the Conference Board showed continued weakness in the US economy as its index of leading US economic indicators registered a mild decrease in December.

The Conference Board said that its Leading Economic Index, a gauge designed to show whether the economy is getting better or worse, decreased by 0.1 per cent in December, below expectations, yet contracted by 2.9 per cent over the past six months, down from 4.3 per cent for the prior six-month period.

However, six of the 10 sub-indicators in the survey were positive in December,

a big improvement compared to prior months. The two other times in the index’s history that it was negative for longer – 1973-1975 and 2007-2009 – a recession followed. Yet, since the pandemic, the economy has not followed the usual patterns.

Finally, at the end of its January monetary policy meeting last Tuesday, the Bank of Japan announced its members’ decision to leave the current monetary policy settings unchanged.

The board members agreed unanimously to keep interest rates at -0.1 per cent and stuck to the central bank’s yield curve control policy that keeps the upper limit for the 10-year Japanese government bond yield at one per cent. This decision was in line with the economists’ expectations. The central bank’s hawkish bias triggered a rebound in the Japanese yen and pushed up Japan’s short-term government bond yield to a one-month high, as investors priced in an increasing chance of an end to negative rates in March or April.

This article does not constitute legal and/or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap. 370 of the Laws of Malta).