January 2023 euro area bank lending survey by European Central Bank (ECB) revealed significant tightening in credit standards for all loan categories along with subdued business loan demand
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European Central Bank (ECB) released the results of the quarterly euro area bank lending survey, conducted between 12 December 2022 and 10 January 2023 among 151 EU banks. The report revealed significant changes in lending practices observed in the fourth quarter of 2022.
The most substantial shifts were recorded in credit standards. These tightened for all loan categories. At the same time, loan demand from firms and the demand for housing loans strongly decreased.
Namely, banks’ internal guidelines or loan approval criteria, commonly known as credit standards, tightened to 26% for enterprise loans, 21% for house purchase loans and 17% for consumer credit, reflecting the largest net tightening since the euro area sovereign debt crisis in 2011.
The change was affected by banks’ declining risk tolerance caused by gloomy economic outlook as well as higher cost of funds. In the first quarter of 2023, European banks expect a further net tightening of credit standards on all types of loans.
Meanwhile, banks reported a decrease in business loans, attributed to rising interest rates and falling financing needs for fixed investment. The exception was the energy-intensive manufacturing sub-sector which recorded a small increase in demand.
The decrease in net demand for housing loans was the strongest on record, driven by the generally high level of interest rates, lower consumer confidence and deteriorating housing market prospects.
Furthermore, the surveyed banks expect a continued strong net decline in demand for household loans in the first quarter of 2023.
Additionally, banks reported access to retail funding and securitisation deteriorated moderately in Q4 2022, while access to debt securities and money markets improved slightly. Finally, euro-area banks strengthened their capital positions in 2022, although to a smaller extent than in 2021.
