European Central Bank (ECB) figures show demand for business loans in the euro zone “significantly declined” in the first three months of this year as borrowing costs rose.
The ECB's quarterly bank lending survey also showed that credit standards (banks' internal guidelines and loan approval criteria) are a little tougher for companies in the single currency area.
This was the first gradual easing of housing loans since the end of 2021.
“In addition to rising interest rates, a decline in corporate fixed investment and a decline in household consumer confidence put suppressive pressure on loan demand,” the ECB said.
“The significant decline in demand for loans from businesses contrasted with previous expectations for bank stabilization,” the ECB said.
A separate ECB poll earlier this week found that fewer companies reported a slight decrease in their need for loans in the first quarter, and fewer companies reported a decrease in the availability of loans.
Officials in Frankfurt are analyzing such data to determine how quickly they can reverse an unprecedented series of interest rate hikes.
Interest rate cuts are expected to begin in June as inflation recedes.
Analysts widely expect deposit rates to be held at a record 4% at Thursday's meeting of policymakers.
“Weaker demand for corporate loans increases the risk of a slowdown in investment in the second half of the year,” said Tomasz Wiladek, chief European economist at T. Rowe Price.
“This is a clear indicator that monetary policy in the euro area remains too tight,” he said.
The eurozone has recorded little growth for more than a year, despite narrowly emerging from recession after Russia attacked Ukraine and consumer prices soared.
Banks continued to enjoy a “significantly positive” impact on their net interest margins from the ECB's rate hikes over the past six months, but the cumulative impact is expected to decline over the next six months.
The ECB said business loan demand may fall further in the second quarter, but household demand should recover.
Lenders expect corporate credit standards to become moderately strict.
