Loans and deposits in Europe grew at a slower pace in the year to June 30 as growing inflationary pressures and rising costs of living prompted banks to restrict access to credit.
According to European Central Bank data compiled by S&P Global Market Intelligence, total lending by French monetary financial institutions, or MFIs, rose 3.6% year-on-year to €7.29 trillion, while those German MFIs increased by 6.4% to 6,510 billion euros. This compares to increases of 9.3% and 9.7%, respectively, a year earlier. MFIs mainly include commercial banks, but also central banks, money market funds and other deposit-taking institutions.
Eurozone banks tightened lending standards in the second quarter and expect to continue to do so as risk tolerance declines amid the current economic outlook, the ECB said in its latest bank lending survey.
Eurozone banks reported a further “considerable” tightening of their lending standards for corporate loans, a “strong” tightening of the standards for housing loans and a “moderate” tightening of credit standards for consumer credit. consumption in the three months to the end of June, according to the ECB survey of 153 banks.
As banks stand to reap net interest gains from the end of ultra-low or negative rates, this could be partially offset by potential loan losses, which could increase as consumers and businesses are feeling the brunt of soaring inflation and the impact of Russia-War in Ukraine just as the economy begins to recover from the fallout of the COVID-19 pandemic.
Demand for corporate loans continued to rise in the second quarter, driven by corporate working capital needs, which the ECB says are likely linked to rising energy and commodity prices in a context of continued supply chain disruptions. Demand for home loans has fallen, mainly due to declining consumer confidence and the general level of interest rates. Banks expect a sharp net decline in demand for home loans in the third quarter, the ECB said.
Total Nordic MFI loans also grew at a slower pace in the year to the end of June, and those in Italy fell to €2.56 trillion from €2.59 trillion a year ago. a year. MFIs in Benelux and Spain saw a slightly larger increase in loan growth than a year ago.
Deposit growth was also slower, according to ECB data. Banks expect their access to retail funds to decline as long-term deposits are expected to deteriorate in the third quarter. Access to short-term deposits should remain unchanged.
Loan-to-deposit ratios fell year-on-year for most of Europe’s largest banks, including Nordea Bank Abp, Svenska Handelsbanken AB (publ), HSBC Holdings PLC, Standard Chartered PLC, NatWest Group PLC and Lloyds Banking Group PLC.
The French banks Groupe BPCE, Groupe Crédit Agricole and BNP Paribas SA as well as the German Deutsche Bank AG saw their ratios increase.