Eurozone banks have sharply tightened lending standards for both households and businesses, driven by escalating geopolitical tensions in the Middle East and surging energy prices that are clouding the economic outlook, according to the European Central Bank’s (ECB) latest Bank Lending Survey.
At the same time, financial institutions have become more cautious in granting mortgages, consumer loans, and other forms of credit to households.
As noted by the ECB, the main reasons for this additional tightening were heightened risks to the economic outlook and a reduced willingness by banks to take on risk.
Banks continue to closely monitor developments related to geopolitical tensions and the energy crisis, as they believe these factors could significantly affect economic activity and borrowers’ ability to repay loans.
Survey ahead of the ECB’s key meeting
The data were released just days before the ECB’s two-day monetary policy meeting, where markets expect interest rates to remain unchanged following the 25 basis point increase decided in June.
However, both economists and investors consider another rate hike in September to be likely.
Policymakers continue to assess the impact of the renewed crisis in the Middle East, which has pushed energy prices higher. Notably, Brent crude exceeded 90 US dollars per barrel for the first time in over five weeks.
Despite the tighter financing environment, the survey recorded a slight increase in demand for business loans.
This increase is mainly attributed to higher corporate needs for working capital financing, inventory building, fixed investment by large companies, as well as refinancing or restructuring of existing debt. In contrast, demand for housing loans declined significantly.
The ECB attributes this development to weaker consumer confidence, changes in interest rates, and less optimistic prospects for the housing market -factors that continue to discourage households from purchasing homes through bank financing.
