Euro Zone Banks Sharply Tighten Credit Access as Iran War Impacts Economy
ECB Survey Reveals Stricter Lending Amid Geopolitical Tensions
Credit Conditions Tighten Across Euro Zone
FRANKFURT, April 28 (Reuters) - Euro zone banks tightened access to credit in the three months to March and expect to continue doing so this quarter as the war in Iran pushes up energy prices and funding costs, a European Central Bank survey showed on Tuesday.
The ECB's quarterly Bank Lending Survey for the 21 countries that share the euro suggested financing conditions were already worsening as a result of the Iran conflict that started in late February, even before any potential interest rate hike by the ECB.
Impact on Loan Approvals
The tightening in banks' criteria to approve loans was larger than expected and, in the case of firms, the sharpest since the third quarter of 2023.
Key Factors Behind Tightening
"Perceived risks to the economic outlook and a lower risk tolerance of banks were the main contributing factors, with banks indicating in a dedicated open-ended question that geopolitical and energy developments exerted tightening pressure," the ECB said.
"Some banks reported additional tightening related to exposures to energy-intensive firms and to the Middle East," it added.
Outlook for the Next Quarter
For the three months to June banks expect a "a widespread and more marked net tightening of credit standard", the ECB said.
Loan Demand and Economic Uncertainty
Demand for loans slightly decreased in the three months to March, contrary to banks' own expectations, as firms cut down on investments, although some replenished their inventories.
Drivers of Loan Demand
"Some banks highlighted that ongoing developments in energy prices were driving increased liquidity demand from firms, while others pointed to higher uncertainty and the postponement of investments as dampening factors for demand," the ECB said.
(Reporting by Francesco Canepa; editing by Balazs Koranyi)
