Bank lending in the euro area showed some improvement in September, as lending to non-financial corporations increased significantly month-on-month and lending to households continued a cautiously accelerating trend. Still, monthly data of this kind is volatile, and annual growth rates remain very subdued at 1.1% and 0.7% growth for businesses and households, respectively. This is an increasing trend, but only comparable to 2015-2016 levels. Until 2023, bank lending growth was accelerating. Needless to say, this has not yet led to a vigorous investment recovery.
The European Central Bank's recently released bank lending survey showed that lending conditions are tentatively improving. Banks did not tighten credit standards for the first time in more than two years, but borrowing demand, particularly for households, was improving cautiously. This is an early sign that the start of the rate cut cycle is starting to impact the early parts of the lending channel.
The ECB has noted the weak recovery in bank lending. At the moment, the ECB appears to be rushing towards neutral interest rates as concerns about economic growth take over from fighting inflation. Bank lending has slowed but shows cautious signs of improvement, with the ECB taking today's data as encouragement that further lifting of the monetary brake will impact prospects for improved economic activity. Very likely.
