Demand for bank loans in the 20-nation eurozone rose in the third quarter and a further increase is expected in the final three months of the year, with household mortgages driving the expansion, according to a European Central Bank survey published on Tuesday.
Lending growth has been just above zero all year as high interest rates and weak economic growth have depressed demand, lowering the outlook in a bloc that has teetered on the edge of recession for years.
This weak growth is one of the main reasons why the ECB is almost certain to cut interest rates this week for the third time this year, arguing that inflation is now close to being brought under control and that it is time to release the brakes.
“For the first time since the third quarter of 2022, banks reported a moderate net increase in demand for loans or credit lines from businesses, while remaining weak overall,” the ECB said in a quarterly survey of 156 major lenders. “The net demand for mortgages has increased sharply.”
Lower interest rates have boosted demand for business loans, but investment has had little effect, according to the ECB. For households, the increase in demand is due to falling interest rates and improved prospects for the property market.
For the current quarter, the banks expect a further increase in net demand across all loan segments, especially for home loans.
However, rate cuts are not an obvious boon for lenders as they squeeze lending margins and banks reported the first negative impact of ECB policy on their margins since late 2022.
“Banks expect the negative net impact on margins from the ECB’s interest rate policy to deepen and lead to a decline in overall profitability compared to the high levels reached during the 2022-2023 tightening cycle,” the ECB said.
Credit standards, i.e. the criteria for bank approval of loans, remained unchanged for companies after more than two years of consecutive tightening, but a further tightening was observed for the current quarter.
In the case of mortgage loans, lending standards have been relaxed and banks are planning further relaxations.
