A
key input in policy deliberations, the survey is further proof
that the bloc's economy is struggling to cope with rapid rate
hikes and will strengthen arguments for the ECB to hold fire
after what is set to be its ninth straight increase on Thursday.
"Firms' net demand for loans fell strongly in the second quarter
of 2023, dropping to an all-time low since the start of the
survey in 2003," the ECB said in a quarterly survey of 158
banks.
During the current quarter banks expect a further drop in loan
demand albeit of a "much smaller" scale than in the second
quarter, the ECB added.
The decline came as banks saw their access to funding
deteriorate but still increased their own margins.
While the percentage of banks reporting tighter credit standards
was smaller than in the previous quarter, it remained above the
survey's historical average and came on top of already
substantial tightening, the central bank said.
Banks expect to continue tightening credit standards this
quarter.
The ECB has already raised rates by a combined 4 percentage
points in the past year, all in the hope this would restrict
demand just enough to contain inflation without pushing the bloc
into recession.
That effort is now bearing fruit as inflation is coming down
quickly, despite an exceptionally tight labour market.
But economic growth was negative around the turn of the year and
there is no still recovery in sight as many of the ECB's rate
hikes have yet to work their way through the economy.
Demand for mortgages also dropped sharply, though not as much as
the "very large" decrease in the previous two quarters, but a
further moderate drop is likely during the third quarter, the
ECB added.
Banks said that their stock of non-performing loans (NPL) also
pushed them to tighten credit standards.
While NPL ratios have not changed substantially, banks'
perception of refinancing and repayment risk increased, the ECB
added.
(Reporting by Balazs Koranyi; Editing by Francesco Canepa)
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