Eurozone banks to tighten access to corporate credit amid war fears: ECB | Investment News

FRANKFURT (Reuters) – Euro zone banks plan to sharply tighten access to corporate credit in the second quarter as the war in Ukraine weighs on their outlook and sharply lowers their risk tolerance, a Bank survey showed on Tuesday. Central European.

As the war drags on and inflation soars, policymakers are increasingly concerned that banks will cut lending, increasingly reluctant to finance investment in times of uncertainty. They also fear that increased household spending on daily necessities will reduce their disposable income.

Credit standards, or banks’ internal loan approval criteria, have already tightened in the first quarter on perceived heightened risk, in part due to high inflation and continued market disruptions. supply chain, the ECB said.

But the second quarter is expected to be even more difficult as banks seek to protect their balance sheets from the fallout from the Russian war in Ukraine and they remain concerned about high input prices.

“Banks expect a significantly stronger net tightening of credit standards for corporate loans, likely reflecting the uncertain economic impact of the war in Ukraine and the anticipation of less accommodative monetary policy,” said the ECB in a quarterly loan survey.

“In addition, banks expect a moderate net tightening of credit standards for housing loans and consumer and other household loans,” he added.

Still, demand for credit continued to rise across the board in Q1 and the ECB expects demand for business loans to pick up sharply in Q2, even though interest in mortgages is likely to go up. to lower.

The survey is normally a key input into the bank’s policy deliberations and policymakers are likely to worry that the flow of credit to the economy will shrink just as growth stalls.

The bank will then meet on April 14 and while no major policy action is expected, the ECB could provide more details on how it plans to roll back its extraordinary stimulus package, fearing inflation will now be a bigger problem than weak growth.

(Reporting by Balazs KoranyiEditing by Gareth Jones)

Copyright 2022 Thomson Reuters.