According to the July 2023 euro area bank lending survey (BLS), credit standards – i.e. banks’ internal guidelines or loan approval criteria – for loans or credit lines to enterprises tightened further in the second quarter of 2023.
The net percentage of banks reporting a tightening was smaller than in the previous quarter, standing at 14%, compared with 27% in the first quarter in line with what banks had expected. The cumulated net tightening since the beginning of 2022 has been substantial, and the BLS results have provided early indications about the significant weakening in lending dynamics observed since last autumn.
Banks also reported a further net tightening of their credit standards for loans to households for house purchase and consumer credit and other lending to households (net percentages of 8% and 18% respectively). For households, the net tightening was less pronounced than in the previous quarter for housing loans, while it was more pronounced for consumer credit.
Higher risk perceptions related to the economic outlook and borrower-specific situation, lower risk tolerance as well as banks’ higher cost of funds contributed to the tightening. For the third quarter of 2023, euro area banks expect a further, albeit more moderate, net tightening of credit standards on loans to firms, and unchanged credit standards on loans to households for house purchase. For consumer credit, euro area banks expect a minor net tightening of credit standards.
Bank’s overall terms and consitions, i.e. the actual terms and conditions agreed in loan contracts – tightened further for loans to firms and loans to households in the second quarter of 2023. Widening loan margins and rising interest rates accounted for the main tightening effect, reflecting the ongoing pass-through of higher market rates to lending rates for firms and households.