The lending situation to non-financial companies in the Eurozone continued in September with a growth of 4.2 percent compared to last year. At the same time, the growth of lending to households remained stable at 3.1 percent, with both figures unchanged from August. This indicates the continuation of the banks' lending improvement trend before the recent changes in the interest rate environment.
The impact of rising interest rates on lending conditions
However, the background conditions have now become less supportive. The European Central Bank (ECB) raised its key rate by 25 basis points in September, bringing the deposit rate to 2.5 percent. Additionally, markets are also anticipating higher rates due to renewed concerns about rising inflation.
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The lending statistics for September still appear healthy, but a bank lending survey indicates that credit growth in the Eurozone may decline. Banks have reported tightening credit standards for companies, while demand for corporate loans unexpectedly decreased in the third quarter. This drop in demand has occurred due to the negative effects of higher interest rates on borrowing.
Changing financial conditions and the future decisions of the ECB
Lending conditions across all loan categories have tightened, primarily due to rising rates, and a larger share of loan applications has been rejected. This survey indicates early signs that tighter monetary conditions are beginning to take effect, as high borrowing costs weaken loan demand.
The European Central Bank is expected to decide to halt lending on Thursday and may wait until December to make decisions regarding potential further increases. Despite early signs of financial challenges and the secondary impacts of high energy costs that have not yet fully materialized, the ECB will carefully consider these factors before its December meeting.
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