Europe: Banks feeling the slowdown – ABN AMRO

Aline Schuiling, senior economist at ABN AMRO, explains that according to the ECB’s latest Bank Lending Survey (BLS) for the final quarter of 2018, banks kept their lending standards on loans to non-financial companies broadly unchanged, after they had eased them for the previous seven consecutive quarters in a row.

Key Quotes

“The outcome for 2018Q4 was in line with what banks had expected the quarter before. The forward looking part of the most recent survey reveals that banks plan to tighten lending standards in 2019Q1.”

“Looking at the largest five individual eurozone countries, Italy was the only one where banks on balance reported a tightening of credit standards on loans to enterprises in Q4 (balance +10, up from -10 in 2018Q3). Moreover, the details of the report shows that banks in Italy and Spain reported that cost of funds and balance sheet constraints had had a significant tightening impact on overall terms and conditions on loans to enterprises.”

“Over the past 3 months, the positive contribution to loan demand stemming from fixed investment remained unchanged in 2018Q4, whereas demand stemming from inventories and working capital and the general level of interest rates declined somewhat.”

“Overall, the BLS shows that the banking sector is starting to feel the impact of slower economic growth and market volatility, with the growth in demand for loans slowing, while banks are no longer easing credit conditions.”