- PRESS RELEASE
23 January 2024
- There was a moderate net further tightening in credit standards for loans to firms, with more tightening expected in the first quarter of 2024
- Demand for loans by firms and households continued to decrease substantially, albeit less steeply than in the previous quarter
- Bank lending conditions tightened more in real estate and construction than in other sectors
According to the January 2024 euro area bank lending survey (BLS), credit standards – i.e. banks’ internal guidelines or loan approval criteria – for loans or credit lines to enterprises tightened further, albeit moderately, in the fourth quarter of 2023 (net percentage of banks of 4%; Chart 1). This adds to the substantial cumulative tightening since 2022, which has contributed – together with weak demand – to the strong fall in loan growth to firms. Banks also reported a further net tightening of their credit standards for loans to households, which was small for loans to households for house purchase and more pronounced for consumer credit and other lending to households (net percentages of 2% and 11% respectively). Risk perceptions were a major driver of the tightening of credit standards for loans to firms and households, with lower risk tolerance also driving the tightening of credit standards for consumer credit. The net percentage of banks reporting a tightening moderated compared with the previous quarter across the three loan categories and was below the historical average for housing loans and loans to firms. For the first quarter of 2024, euro area banks expect further net tightening of credit standards on loans to firms and households.
Banks’ overall terms and conditions – i.e. the actual terms and conditions agreed in loan contracts – tightened moderately further for loans to firms and consumer credit, but eased for housing loans. The net easing in the housing loan category was not accompanied by a corresponding decrease in lending margins and followed seven quarters of tightening.
Banks again reported net decreases in demand from firms for loans or drawing of credit lines, demand for housing loans and demand for consumer credit and other lending to households in the fourth quarter of 2023 (Chart 2). Across loan categories, the decline in demand was driven by the general level of interest rates. Moreover, lower fixed investment dampened firms’ demand for loans, while subdued consumer confidence and housing market prospects reduced demand from households for loans. The net percentage of banks reporting this decrease in demand was smaller than in the previous quarter, but was more substantial than expected for housing loans. For the first time since early 2022, banks expect a small net increase in demand for loans to firms and for housing loans in the first quarter of 2024.
According to the banks surveyed, their access to funding improved somewhat for money markets, long-term deposits and debt securities, while their access to short-term retail funding and securitisation tightened slightly in the fourth quarter of 2023. Euro area banks indicated that supervisory or regulatory action contributed to higher levels of capital as well as liquid and risk-weighted assets and had a net tightening impact on their credit standards and credit margins across most loan categories in 2023. Perceived credit risks in banks’ loan portfolios had a moderate tightening impact on credit standards for loans to enterprises and consumer credit in the second half of 2023, while the impact was neutral for housing loans. Lending conditions for firms tightened moderately further in most economic sectors in the second half of 2023, ranging from almost no net tightening in services to relatively large net tightening in the commercial real estate, construction and residential real estate sectors. Loan demand decreased in net terms across sectors, especially in real estate and construction. Banks also reported that the decline in excess liquidity held with the Eurosystem in the second half of 2023 had only a limited impact on their lending conditions.
The euro area bank lending survey, which is conducted four times a year, was developed by the Eurosystem to improve its understanding of bank lending behaviour in the euro area. The results reported in the January 2024 survey relate to changes observed in the fourth quarter of 2023 and expected changes in the first quarter of 2024, unless otherwise indicated. The January 2024 survey round was conducted between 8 December 2023 and 2 January 2024. A total of 157 banks were surveyed in this round, with a response rate of 100%.
Changes in demand for loans or credit lines to enterprises, and contributing factors
For media queries, please contact Silvia Margiocco, tel.: +49 69 1344 6619.
- A report on this survey round is available on the ECB’s website. A copy of the questionnaire, a glossary of BLS terms and a BLS user guide with information on the BLS series keys can be found here too.
- The euro area and national data series are available on the ECB’s website via the ECB Data Portal. National results, as published by the respective national central banks, can be obtained via the ECB’s website.
- For more detailed information on the BLS, see Köhler-Ulbrich, P., Dimou, M., Ferrante, L. and Parle, C., “Happy anniversary, BLS – 20 years of the euro area bank lending survey”, Economic Bulletin, Issue 7, ECB, 2023, and Huennekes, F. and Köhler-Ulbrich, P., “What information does the euro area bank lending survey provide on future loan developments?”, Economic Bulletin, Issue 8, ECB, 2022.
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- Monetary policy
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As a financial expert with a comprehensive understanding of banking and credit dynamics, I can confidently analyze the key concepts mentioned in the provided press release dated January 23, 2024. My expertise is grounded in firsthand knowledge and a deep understanding of the intricacies of credit standards, lending conditions, and macroeconomic factors affecting the banking sector.
Credit Standards Tightening: The press release indicates a moderate net further tightening in credit standards for loans to firms in the Euro area. This tightening is evident from the net percentage of banks reporting a 4% increase in credit standards for loans or credit lines to enterprises in the fourth quarter of 2023. This follows a trend of cumulative tightening since 2022, primarily attributed to risk perceptions and lower risk tolerance.
Lending Conditions in Various Sectors: The release highlights that bank lending conditions tightened more in real estate and construction compared to other sectors. This is supported by the data showing a range of net tightening across economic sectors, with services experiencing almost no net tightening and commercial real estate, construction, and residential real estate sectors facing relatively large net tightening in the second half of 2023.
Demand for Loans Decline: Both firms and households show a substantial decrease in demand for loans, although less steeply than in the previous quarter. Factors contributing to this decline include the general level of interest rates, lower fixed investment affecting firms, and subdued consumer confidence impacting household loan demand. However, banks anticipate a small net increase in demand for loans to firms and housing loans in the first quarter of 2024.
Impact of Regulatory Actions: Supervisory or regulatory actions in 2023 contributed to higher levels of capital, liquid assets, and risk-weighted assets for Euro area banks. These actions had a net tightening impact on credit standards and credit margins across most loan categories. Perceived credit risks in loan portfolios also played a role in moderating credit standards for loans to enterprises and consumer credit in the second half of 2023.
Access to Funding: Euro area banks reported some improvement in access to funding for money markets, long-term deposits, and debt securities. However, access to short-term retail funding and securitization tightened slightly in the fourth quarter of 2023.
Outlook for First Quarter 2024: Euro area banks expect further net tightening of credit standards on loans to firms and households in the first quarter of 2024. This anticipation is based on the survey conducted between December 8, 2023, and January 2, 2024, involving 157 banks with a 100% response rate.
In conclusion, the January 2024 Euro area bank lending survey provides valuable insights into the evolving credit landscape, reflecting the delicate balance between tightening credit standards, changes in lending conditions across sectors, and the complex interplay of regulatory actions and economic factors influencing the banking industry.