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Euro zone banks to tighten corporate credit access on war fears: ECB
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FRANKFURT (Reuters) -Euro zone banks plan to sharply tighten access to corporate credit in the second quarter as the war in Ukraine weighs on the outlook and cuts deep into their risk tolerance, a European Central Bank survey showed on Tuesday.
FRANKFURT (Reuters) -Euro zone banks plan to sharply tighten access to corporate credit in the second quarter as the war in Ukraine weighs on the outlook and cuts deep into their risk tolerance, a European Central Bank survey showed on Tuesday.
As the war drags on and inflation soars, policymakers have become increasingly concerned that banks will curtail lending, growing reluctant to finance investment during a period of uncertainty. They also fear that higher household spending on daily necessities will curtail their disposable income.
Credit standards, or banks’ internal loan approval criteria, already grew tighter during the first quarter over perceptions of increased risk, due in part to high inflation and continued supply chain disruptions, the ECB said.
But the second quarter is likely to be even more difficult as banks seek to protect their balance sheets from the fallout of Russia’s war in Ukraine and they remain concerned about high input prices.
“Banks expect a considerably stronger net tightening of credit standards for loans to firms, likely reflecting the uncertain economic impact of the war in Ukraine and the anticipation of less accommodative monetary policy,” the ECB said in a quarterly lending survey.
“In addition, banks expect a moderate net tightening of credit standards for housing loans and for consumer credit and other lending to households,” it added.
Still, demand for credit continued to rise across the board in the first quarter and the ECB expects a net increase in corporate loan demand in the second quarter even as interest in mortgages will likely drop.
The survey is normally a key input in the bank’s policy deliberations and policymakers are likely to be concerned that the flow of credit to the economy is dropping just as growth is coming to a standstill.
The bank will next meet on April 14 and while no major policy action is expected, the ECB could provide further detail on how it plans to roll back its extraordinary stimulus, fearing that inflation is now a bigger problem than weak growth.
(Reporting by Balazs KoranyiEditing by Gareth Jones)
Corporate credit refers to loans and credit facilities extended to businesses for various purposes, including operational expenses, investments, and expansion. It is crucial for companies to manage their cash flow and finance growth.
Monetary policy is the process by which a central bank, like the European Central Bank, manages the supply of money and interest rates to achieve specific economic objectives, such as controlling inflation and stabilizing the currency.
Credit standards are the criteria that lenders use to evaluate the creditworthiness of borrowers. These standards determine the terms and conditions under which loans are approved or denied.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI) and can impact economic stability.
Financial stability refers to a condition where the financial system operates effectively, allowing for the smooth functioning of financial markets and institutions, minimizing the risk of financial crises.
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