Eurozone bank lending continues to inch up - ING

Teunis Brosens, Senior Economist at ING, notes that the Eurozone’s bank lending growth to businesses has overtaken lending growth to households, suggesting that it's not only cheap mortgages that now drive the recovery.

Key Quotes

“Aggregate bank lending to households and businesses (corrected for securitisation and sales) bottomed out at -1.8% YoY in Spring 2014, but has since been improving, reaching 2.2%YoY in December 2016. This turnaround is mostly due to the easing of the credit squeeze in Spain and the firming of bank lending in France and Germany.”

“Yet distinct differences remain between countries recovering from a debt hangover and countries that were spared such an experience. In the former group, Spain, Portugal, Ireland and Greece are still seeing negative bank lending growth. The Netherlands continues to see modest deleveraging among households (-0.7%YoY), while bank lending to businesses is turning positive again. At the other end of the spectrum, bank lending is buoyant in Germany (+3.2%), France (+5.1%) and especially Belgium (+7.8%).”

“At the Eurozone level, the pickup in bank lending was long led by lending to households (mostly mortgages), but over the past year, lending to businesses has strengthened as well. Last week’s Bank Lending Survey showed that businesses have taken renewed interest in bank loans mainly to take advantage of lower rates and to finance M&A activities. Pursuing investment plans is less often cited, which is somewhat disappointing as that would benefit long-term economic growth the most.”

“As for Eurozone growth prospects, the development of overnight household deposits corrected for inflation tends to lead GDP turnarounds by about a year. The stability of this indicator points to a continuation of current modest growth. Next Tuesday will see how GDP growth turned out in Q4; we expect a 1.5%YoY/0.4%QoQ reading.”