Euro zone: borrowing has become more difficult, according to the ECB

Borrowing has become more difficult in the euro zone and households and businesses are requesting less credit, the European Central Bank said on Tuesday, which reinforces expectations that rates will be maintained at its meeting on Thursday. According to the quarterly survey on the distribution of bank credit (BLS), banks in the euro zone reported in the third quarter a net “further tightening” of the criteria applied by banks to agree to lend to companies, under the effect of a “less tolerance for risk”, according to a press release. This reluctance on the part of banks also concerns consumer credit, while the criteria applied to property loans have remained generally unchanged.

This is reflected in the general conditions applied to loans which have tightened in all segments, mainly due to the rise in interest rates, continues the ECB. Banks also reported an increase in the proportion of rejected loan applications, particularly marked for consumer credit. At the same time, demand for credit contracted among businesses and more pronouncedly for property loans.

The level of interest rates remains the main factor in this decline, given the weakness of household confidence and the less favorable outlook for the real estate market. Towards a further tightening of criteria For the fourth quarter, banks anticipate a further tightening of criteria for businesses and a marked tightening for real estate loans and consumer credit. The survey shows that the increase in rates by the ECB since June is starting to be transmitted to the real economy, with the aim of countering inflationary pressures linked in particular to the surge in energy prices in the context of tensions in the Middle East.

Higher rates make borrowing more expensive, dampening demand in the economy and ultimately inflation. Another lesson, banks indicate that artificial intelligence and the associated risks are now taken into account more in the qualitative evaluation of borrowers. They also anticipate a gradual but lasting increase in financing demand for AI-related infrastructure, particularly data centers.

Machine-translated from French