further tightening of credit criteria expected in 2024

THE business loans they suffered an abrupt slowdown in recent months, due to a series of factors, which do not only have to do with the increased cost of credit. And the the situation is not rosy for 2024 because some indicators point to a further slowdown in the credit market in the Eurozone, vital for the growth of businesses and the economy. The last one Bank Lending Survey (BLS) conducted by the ECB in fact notes the existence of major obstacles to granting credit to businesses. But let’s see the results:

Business credit stagnates: the reasons

Credit standardsi.e. banks’ internal guidelines or approval criteria, for loans granted to businesses they have tightened moderately (4% of banks) in the fourth quarter of 2023. But this is in addition to the substantial tightening of credit conditions that occurred starting from 2022, which contributed, together with the weakness in demandat the fort decline in loan growth to businesses.

The reasons that pushed other banks to tighten credit criteria refer to economic prospects and to business situationwhile the impact of the cost of credit, of patrimonial situation of the banks, of the competition and of risk tolerance it was essentially neutral. In particular, banks in most Eurozone countries have reported a perception of greater risks on the horizon.

What to expect

The ECB predicts that credit tightening (the current one and the previous one) will continue to dampen loan growth in the coming quarters, since credit standards represent leading indicators (about 5-6 quarters ahead of the actual development of loan growth), we can therefore expect that the loans effective for businesses remain weak in 2024.

Restrictions also on credit to families

Banks also reported an additional tightening net of criteria for granting credit to familiesmodest for i real estate loans (mortgages), equal to approximately 2%, and more pronounced for the consumer creditequal to 11%.

There risk perception has been a major driver of the tightening of credit standards in both categories. The lower risk tolerance of banks has in fact led to the tightening of credit standards for the granting of consumer credit (loans on purchases), while the slight tightening in the real estate mortgage segment was determined by the smaller countries of the Euro Area.

On the basis of this survey, therefore, the banks expect further tightening net of credit criteria in both categories of loans in the first quarter 2024.

But the demand for credit from businesses and families is also decreasing

The banks reported again net decreases in demand credit from businesses, demand for housing loans and demand for consumer credit and other household loans in the fourth quarter of 2023.

For all types of credit what has had a negative impact is the costor the general level of interest rates. Furthermore, the decline in investments fixed has slowed down the demand for loans from businesses, while the weak consumer confidence and the housing market outlook has reduced household demand for loans.