EZ credit standards see 'further substantial net tightening'

Eurozone banks reported a 'further substantial net tightening in credit standards' for loans to firms and for house purchases in Q1 2023, the ECB's latest Bank Lending Survey shows.

• According to the Q1 survey, conducted between Mar 22 and Apr 6, demand for loans decreased strongly, driven by rising interest rates, lower fixed investment and weakening housing markets.
• The ongoing reduction in central bank balance sheet linked to TLTRO repayments and the end of full APP reinvestments contributing to weakening lending dynamics, the ECB said. ( MNI SOURCES: ECB Set For TLTRO Discussions Ahead June Maturity)
• According to the April BLS, credit standards for loans or credit lines to enterprises tightened further substantially (with the net percentage of banks reporting a tightening standing at 27%) in Q1 (see Chart 1).
• From a historical perspective, the pace of net tightening in credit standards remained at the highest level since the euro area sovereign debt crisis in 2011, the survey suggested.
• Eurosystem sources have suggested to MNI that the April Q1 BLS will be a key data metric discussed by the Governing Council in formulating the May 4 policy outcome. (MNI SOURCES: ECB To Hold Rates At Peak Into 2024)