Since 2011, bank lending conditions have not been so strict

Borrowing is becoming increasingly difficult for firms and households. As a result of the European Central Bank’s interest rate policy, more European banks are tightening their lending conditions. The ECB’s quarterly report shows that conditions have not been so severe since 2011, during the euro crisis.

The ECB Bank Lending Survey The quarterly report is based on a survey of 158 banks conducted between late March and early April. Banks in the Eurozone indicated interest rate hikes would be passed on to their customers. At the same time, lending conditions are tightening, and demand for loans is less.

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The ECB is expected to raise interest rates again later this week. The general level of interest rates is the main reason for the decrease in demand for loans Report. The fall in corporate loan applications in the first quarter was more than banks had expected. Households are also less likely to apply for mortgages.

‘Not a good sign’

That’s not a good sign, says BNR’s home economist Han De Jong. He argues that things that affect credit and the economy also affect goods and services, and that tightening credit conditions is usually a precursor to a slowdown in economic growth. ‘Demand for credit from companies in particular – as experienced by banks – is falling,’ says de Jong. “That’s not a good sign either.”

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According to de Jong, the problem lies in companies not applying for loans because they lack confidence in the future, and the fact that companies no longer apply for loans because interest rates have risen. Bad news for banks. “I’ve been thinking for a while that we’re heading into a recession, and these figures don’t change my opinion,” says de Jong. ‘In fact, they somewhat confirm my point. We know that if there is a recession, companies will go bankrupt and banks will face loan losses. So this is not good news for banks.’

Banks are not willing to take risk. In addition, banks find it very expensive to finance themselves. According to the ECB, customers withdrew 146 billion euros from their accounts in the first quarter of this year.

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Faith is constant

Despite the recent turmoil in the banking world caused by the collapse of Silicon Valley Bank in the US and Credit Suisse in Switzerland, the Dutch’s faith in financial institutions has proven stable. More than half of respondents in a survey conducted by De Nederlandsche Bank (DNB) say they have a lot or a lot of trust in those institutions. Others have little or no faith.

This time, TNB’s annual survey coincided with the unrest in the banking sector in March. Survey was conducted in more than 2200 households. Three-quarters of them were confident that their own bank would always repay the money entrusted to them. For all Dutch banks, like insurers, that percentage is 68 percent. 62 percent trust in pension funds.