MNI BRIEF: ECB Lending Survey Shows "Substantial" 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 showed on Tuesday.

According to the Q1 survey conducted between March 22 and April 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 contributed to weakening lending dynamics, the ECB said. ( MNI SOURCES: ECB Set For TLTRO Discussions Ahead June Maturity)

Credit standards for loans or credit lines to enterprises tightened further, 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 for the Governing Council in formulating the May 4 policy outcome. (MNI SOURCES: ECB To Hold Rates At Peak Into 2024)