Bank lending survey shows further tightening in lending conditions

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Demand for bank loans fell again across the eurozone in the three months to June, as policy tightening by the European Central Bank appears to be taking a firmer grip on the economy, the latest Bank Lending Survey, published Tuesday, shows.

• Banks said credit standards tightened further for all loan categories, while demand for loans decreased strongly for both firms and households.
• The survey also showed banks are growing more concerned over non-performing loans and are set to tighten lending conditions further in the months ahead. The net percentage of banks reporting a tightening was smaller than in the previous quarter, standing at 14%, compared with 27% in Q1, but inline with their expectations laid out then.
• According to the ECB survey, 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.
• The ECB, who meet Thursday and look set to hike rates by 25 bps to 3.75%, will closely study the latest BLS as it is seen as a key metric ahead of the September policy round. The further signs of deterioration in lending conditions could open the way to a September pause if other data points in the next 6 weeks also slow. (MNI SOURCES: Data Deluge Clouds Early ECB September Rate Call)