Frankfurt European companies took out significantly fewer bank loans in the second quarter than financial institutions had expected. That’s according to a quarterly European Central Bank (ECB) credit survey released on Tuesday. The ECB announced that the fall in demand was the sharpest it had been since the survey began in 2003.
The central bank measures the difference between banks reporting an increase in demand and banks reporting a decline. This net value hit a low of minus 42 percent. According to the ECB’s Bank Lending Survey, banks had expected a less dramatic decline. In particular, interest in long-term loans used for investments fell drastically.
This development coincides with the Bundesbank’s results for credit demand in Germany, which were also published on Tuesday.
According to the ECB, the main reasons for the sharp drop in interest in loans are rising interest rates and lower financing requirements for fixed investments. This applied to each of the four largest economies in the euro zone, i.e. Germany, France, Italy and Spain. Italy was hit the hardest.
In the past few quarters, the high financial requirements for warehousing and working capital had supported the demand for credit. Businesses needed credit to offset instability in their supply chains from fuller inventories. They also had to spend more money on their primary products due to inflation.
Banks are expecting a further drop in demand
This effect no longer plays a role. In the second quarter, working capital loans only had a neutral impact on credit demand. In Germany, these mostly short-term loans did not support demand for the first time since 2019, as the Bundesbank writes.
The banks are also expecting a further decline in demand in the current third quarter, but they assume that the minus will be less than in the second quarter.
Despite the falling demand for credit, banks say they are still paying attention to who they lend money to. Financial institutions have tightened their credit standards across Europe. The proportion of banks that rejected more loans than in the previous quarter also continued to rise, both in the euro zone and in Germany.
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