ECB Bank Lending Survey: Conditions Moderating But Pitfalls Remain (Real Estate, Consumer)

ECB bank lending survey out – key highlights:

• Further moderate net tightening was seen in 4Q23, more is expected in 1Q24 (3Q23 saw tightening faster than previously expected, so the rate of change is reducing). Notably, funding constraints have disappeared as a tightener and banks’ own risk tolerance was a significantly smaller contributor here. By geography, France, Spain and Italy saw least tightening whilst Germany still saw a moderate net tightening.
  • Expected tightening looks set to tick back up in 1Q24 but the actual outturn was significantly “looser” than where the expectation sat at Sep-23.
• Loan demand (both personal and corporate) continued to drop “substantially”, albeit less than the rate in 3Q23. Higher rates and lower fixed investment were the key drivers here with both corporate and mortgage demand still weak, though less than 3Q23. The rate of decline improved the most in Spain and Italy, with fixed investment improving in both. Germany and France both saw continuations of the trends seen in the prior quarter.
  • Expected demand metric has improved and points to flat/mildly positive in 1Q24.
• In corporate, real estate and construction were the focus sectors for lending conditions tightening. In the personal area, consumer credit was tougher, and banks appear to see the situation worsening again in 1Q24. This is traditionally the more high-beta end of the personal lending market.

Our summary would be that there’s little here to meaningfully alter credit perceptions, outside of consumer credit, construction and real estate (all known previously, we feel). The more positive outlook statements from banks are helpful but a limited factor.