European banks are restricting loans at the highest rate since the 2011 euro crisis

Fear of increased risk of delinquency banks and a lot of uncertainty among families and companies. The explosive cocktail that caused a sharp slowdown in credit activity in the eurozone in the first quarter and threatens to intensify from now on. Banks do not want to take risks and have been much more scrupulous about the type of clients they finance for a long time. They put more conditions, look for better profiles and, in some cases, increase the price of the offer to ensure that only those who can and are able to pay enter their portfolio.

“The tightening of loans to companies and for the purchase of apartments was stronger than banks’ expectations in the previous quarter and indicates a permanent weakening of credit dynamics,” he admits. European Central Bank (ECB) in its latest survey of bank loans. The document published this Tuesday leaves no room for doubt about the slowdown in lending in the region, which also coincides with the outbreak of the banking confidence crisis in the US.

Experts have already predicted that it will juice who experienced a breakdown in March Silicon Valley Bank — and which in Europe was reflected in the decline of Credit Suisse — would cause credit to slow down. But the slowdown is even greater than expected, reinforced by the very cycle of rising interest rates, the weakening of the outlook for the real estate market and the decline in consumer confidence. Mortgages are tightening, and demand for them also remains the lowest in a historical series of surveys. But, above all, it affects the business loan. “The credit regulation, i.e. the internal guidelines of entities or their approval criteria for companies, have been significantly tightened,” notes the central bank.

Namely, the percentage of entities that recognized these higher demands was 27%. “From a historical perspective, that pace remains at the highest level since debt crisis sovereign of the eurozone in 2011″, the institution explains.

Demand is cooling

Added to this was a sharp drop in demand, even “stronger than expected banks and the strongest since the global financial crisis» of 2008 due to the increase in the cost of credit in the current environment of rising interest rates. The indicator to which most mortgages apply in Spain has just ended a positive year, rising from 0.013% in April 2022 to 3.757% in the same month of this year. An unprecedented growth rate that has not only made variable rate loans more expensive, but also further tightens these conditions for new mortgages.

And the worst was yet to come. The survey shows that banks also expect a further “sharp decline” in this second quarter, with tighter conditions that could translate into more expensive mortgages and loans. Own Bank of Spain recently explained that national entities have barely passed on 30% of the Euribor increase to the cost of their housing loans.