Euro zone banks see small tightening of credit standards in third quarter

Euro zone banks expect corporate loan demand to surge in the third quarter and see just a moderate tightening of credit standards or loan approval criteria, the European Central Bank said on Tuesday.a close up of a sign: FILE PHOTO: The logo of the European Central Bank (ECB) is pictured outside its headquarters in Frankfurt

Credit standards held steady in the second quarter after significant tightening last year, the ECB said based on a survey of the bloc’s biggest lenders. On the demand side, the figures suggest that firms are now more willing to invest.

“For the first time since the third quarter of 2019, firms’ financing needs for fixed investment contributed positively to loan demand, suggesting that firms may become less reluctant to invest,” the ECB said.

Lending surveys are normally a key consideration in ECB policy decisions but Thursday’s meeting will likely focus on tailoring the bank’s stimulus effort to better fit its new strategy, which is likely to trump any real time data.

The ECB earlier this month unveiled a tweaked inflation target and said that long periods weak inflation, like experienced in recent years, may require more forceful or more persistent stimulus effort.

While the ECB is unlikely to unveil fresh stimulus measures to align policy with the strategy, it is likely to signal an even longer period of stimulus, hoping to lift inflation expectations and eventually get actual price growth back to its 2% target, a mark it has missed for almost a decade.

For mortgages, credit standards are expected to remain broadly steady, the ECB added.

In terms of demand, banks expect a further net increase in demand for loans by both firms and households, the survey showed.

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