ECB: Companies and property buyers are finding it more difficult to obtain new loans

Banks see higher credit risks and expect the trend to intensify. The interest rate development also has an impact on the real estate and consumer business.

The European Central Bank found in its credit survey that banks in the euro area have further tightened their standards when granting loans to companies due to rising credit risks.

Banks expect their lending to become even stricter in the fourth quarter and are also tightening conditions for real estate and consumer loans.

Demand from companies, especially medium-sized businesses, and consumers for loans has fallen, partly because of higher interest rates, and banks have rejected more loan applications.

Frankfurt. Rising interest rates are putting a strain on lending in the euro area. It is becoming more difficult for companies to obtain new loans, as a survey of Europe's banks by the European Central Bank (ECB) shows. Credit growth appears to have peaked.

Banks in the euro area further tightened their standards for granting loans to companies in the third quarter. According to the ECB's quarterly credit survey, the Bank Lending Survey (BLS), this is primarily due to increasing credit risks.

According to the banks, the trend is likely to intensify in the fourth quarter. Financial institutions are not only becoming more cautious when it comes to corporate loans, but also when it comes to real estate and consumer loans.

Banks also reported lower demand from businesses and consumers. The main reason they cited was the rise in interest rates. In addition, banks are increasingly rejecting loan requests, as the Bundesbank reports.

“This was the first decline in corporate loans in more than two years,” notes the Bundesbank. This particularly affects medium-sized companies and long-term loans. The real estate loan business unexpectedly weakened significantly over the summer.

The ECB has raised key interest rates twice since June, each by a quarter of a percentage point, and is heading for a third rate hike in December. When it decides on interest rates this Thursday, it is likely to leave the deposit rate, which determines loan interest rates, at 2.5 percent. Capital market interest rates have already risen sharply. This is due to expectations of further interest rate increases by the ECB and because investors are demanding higher risk premiums for government bonds.

According to the ECB, lending growth stagnated in September. As in August, banks extended 4.2 percent more loans to companies than a year ago, after a three-year high of 4.4 percent in July. The growth of loans to private households has stagnated at rates of 3.1 or 3.0 percent since the beginning of the year.

Ulrich Wortberg from Landesbank Helaba expects little influence on interest rate expectations: “Lending is showing comparatively little momentum, and so the numbers speak against a massive surge in inflation,” said the analyst. “At the same time, they show little economic momentum.”

Inflation in the euro area reached 3.8 percent in September, its highest level in three years. Economists are soon expecting rates of more than four percent. The main reason is the persistently high oil and gas prices. The ECB is aiming for an inflation rate of two percent.

Leading economic indicators such as the purchasing managers' indices and the Ifo business climate continue to point to moderate growth in large parts of the euro zone. “The prospect of a somewhat more restrictive monetary policy from the ECB does not seem to be frightening companies at the moment,” said Christian Lips from NordLB. “But they may also be expecting less severe tightening than the financial markets.” According to the futures markets, investors are pricing in up to three further interest rate increases from the ECB within a year.