(Bloomberg) -- Banks in the euro area reported the first increase in demand for consumer credit and housing loans since 2022, the European Central Bank said.
The ECB’s quarterly Bank Lending Survey also showed that appetite from companies continued declining in the three months through June, though there was considerable divergence across the region. While rising in Germany and Spain, it continued to fall in France and Italy.
“Higher interest rates and lower fixed investment continued to exert dampening pressure on loan demand from firms,” the ECB said Tuesday. “At the same time, improving housing market prospects, consumer confidence and spending on durables positively supported demand from households.”
Lending data is a key input for ECB policymakers as they determine how quickly they can lower borrowing costs after a first reduction in June. Officials are widely expected to stand pat when they meet this week, with analysts only expecting another move in September.
Inflation is forecast to ease slowly in the coming months as an economic rebound in the 20-nation bloc slowly takes hold. Recent indicators have raised some doubts about the recovery, however, as business surveys by S&P Global pointed to slowing momentum.
In a sign of possible improvement, banks expect net demand for loans to increase across all categories in the third quarter, the ECB said.
According to the survey, credit standards — bank’s internal guidelines or loan-approval criteria — were “broadly unchanged at tight levels.” While they became moderately stricter for companies, they eased slightly for housing.
“Banks’ risk tolerance was the main driver behind the net tightening for loans to firms,” the ECB said. “Competition contributed to an easing of credit standards for housing loans.”
For the third quarter, banks see a moderate net tightening for loans to firms and unchanged credit standards for loans to households.
Developments in credit demand and standards are of particular relevance to monetary policy as they’re a leading indicator for the future path of loans and shed light on how effectively changes in interest rates are transmitted to the economy.
In a 2022 study, the ECB said credit demand precedes actual loan growth by about three quarters for companies, and by five to six quarters when it comes to standards.
--With assistance from Mark Schroers.
©2024 Bloomberg L.P.
