Eurozone: Still a positive momentum for corporate credit

3 min
Ana Boata
Ana Boata Senior Economist for Europe

The ECB Bank Lending Survey reported a higher-than-expected easing in credit standards for both Eurozone SMEs and large corporates in Q3, excluding France where credit standards remained unchanged as banks are less optimistic on the economic environment. Banks reported that competitive pressure, lower risk perceptions with regard to the economic situation, and borrowers’ creditworthiness contributed to the easing. Banks’ cost of funds and balance sheet constraints had a neutral effect in all major countries, but banks expect worse market financing conditions in the next six months as the ECB prepares to gradually tighten its monetary policy. Italian banks reported tighter terms and conditions on loans, mainly as there is a widening of margins on riskier loans and less favorable cost of funds. Overall, Eurozone banks expect a further easing in credit conditions in the next three months, albeit to a lower extent. The rise in net demand for loans to corporates continued to rise in Q3, but less than expected. It was driven by the low interest rates, fixed investments, inventories and working capital as well as M&A activity. Banks expect a further increase in net loan demand from corporates in Q4.