FRANKFURT (Reuters) – Euro zone banks curbed firms’ access to credit last quarter and expect to keep tightening credit standards due to increasing concerns about the economic outlook, the European Central Bank’s lending survey showed on Tuesday.
Lending growth has been on a modest upward slope for most of the past year, helped by falling ECB interest rates, but the upside is now seen as limited given the global turmoil caused by erratic U.S. trade policy.
Hoping to at least prop up confidence, the ECB is expected to cut interest rates for the seventh time in a year on Thursday, and two or three times more later in the year, as tariffs curb trade and uncertainty weighs on consumption and investment.
Driven by a shift in Germany and several smaller euro zone nations, banks tightened credit standards – their internal guidelines or loan-approval criteria – for business loans in the first quarter and said they expected a further tightening for all loan categories in the current quarter, the ECB said.
Although this tightening was smaller than banks earlier predicted, it was driven by higher perceived risks related to the economic outlook, the ECB said based on its Bank Lending Survey, a key input into Thursday’s interest rate decision.
Demand for corporate credit also decreased last quarter but banks see a small rebound in the current quarter despite higher risk perceptions reported by lenders in Germany, France and Italy.
“Loan demand decreased, mainly owing to a negative contribution from firms’ inventories and working capital and despite the support from declining interest rates,” the ECB said.
For mortgages, banks continued to report a surge in demand and easing credit standards, primarily due to rising competition among lenders.
Mortgage demand in the current quarter is expected to rise further.
(Reporting by Balazs Koranyi; editing by David Evans and Hugh Lawson)
