Eurozone banks extend loans to companies at a two-year high rate
In a notable development for the Eurozone economy, banks increased their lending to businesses in June 2023, marking the highest rate of business loan growth since that month. This surge in lending can be attributed to eased credit standards, particularly lower interest rates, narrower margins, and larger loan sizes in some countries.
The European Central Bank (ECB) data reveals that terms and conditions for loans to enterprises eased overall, with declining lending rates in countries like Spain and Italy, and lower non-interest charges and larger loan sizes in France. Despite some banks in Germany tightening lending conditions slightly, the general trend remained towards easier credit for businesses, supported by the reduction in bank lending interest rates in April and May 2023.
This more favourable lending environment led to an increase in loan growth to businesses, reaching a 2.6% annual increase by June 2023. The growth in lending to businesses in June was higher than the growth in May, which was at 2.5%.
The increase in business lending was not the only positive trend. Loans to private households also rose, albeit at a slightly slower pace compared to business lending. Household credit increased by 2.2% year-on-year in June 2023, marking a recovery supported by the ECB's recent policy easing.
The combined effect of increased lending in both segments led to a rise in credit growth to the private sector, reaching 3.0% from 2.8%.
Money supply M3, which consists of cash, demand deposits, and money market instruments and bonds, also increased by 3.3% year-on-year in June. However, the actual increase in M3 was lower than the expected increase of 3.7% according to economists surveyed by news agency Reuters.
The ECB had cut interest rates for the seventh consecutive time at the beginning of June before pausing on Thursday. The lower interest rates, as set by the ECB, tend to make loans cheaper, contributing to the increase in M3.
Despite the increase in M3, no specific information was provided about the potential reasons for the increase aside from the decisions made by the guardians or the potential impact of the increase on the overall economy.
The European Central Bank released data showing this increase in M3 on Friday in Frankfurt. No specific information was provided about the total amount of money supply M3 or the number of instances it increased. Similarly, no information was provided about the total amount of loans issued or the number of loans given out.
In summary, banks in the Eurozone responded to both policy and market signals by facilitating more loans to businesses in June 2023, which helped sustain overall credit growth alongside continued, though slightly slower, growth in household lending. The increase in business lending resulted from eased credit standards, while loans to private households also grew, albeit at a slightly slower pace. The actual increase in money supply M3 was lower than the expected increase, indicating a slightly more cautious approach by banks than anticipated.
- The positive trend in business lending, due to eased credit standards, could potentially have a significant impact on the EC countries' employment policies, as increased access to loans may boost enterprise development and job creation.
- With businesses in the EC countries receiving more finance through easier lending policies, this situation might foster a favorable business environment, potentially encouraging growth in various sectors, which is crucial for overall economic stability.
