Euro area banks tightened credit standards for loans to firms and consumers in the third quarter, the European Central Bank’s Bank Lending Survey found, and they expect to tighten again in the fourth quarter. The survey, published in October, covered 159 financial institutions across the euro area. Banks cited geopolitical crises, sharp price increases and reduced risk tolerance as their reasons for tightening.
Firms and households feel the squeeze
The net share of banks tightening standards for loans to firms stood at 9 percent in the third quarter. For consumer loans the net share was higher, at 14 percent. No change was recorded in standards for mortgage lending.
High interest rates reduced firms’ demand for credit over the summer, and the survey says it also cut their demand for credit lines. Small and medium-sized enterprises cut back on fixed investment. Some turned to alternative financing instead.
Inflation and the ECB’s next move
Euro area inflation has risen to 3.8 percent after an oil shock. Financial markets expect the ECB to hold policy rates at its meeting on 29 October. Analysts say tighter bank lending supports the central bank’s effort to bring inflation down.
Demand for credit to finance investment in AI infrastructure has grown steadily. For now, banks assess that lending only through qualitative risk reviews.
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Source: European Central Bank
