Eurozone banks tighten lending - ECB survey: Financing conditions are worsening due to the conflict in Iran
Eurozone banks tightened access to credit in the first three months of the year and expect to continue to do so this quarter as the war in Iran raises energy prices and financing costs, a European Central Bank survey showed.
The ECB's quarterly Bank Lending Survey for the 21 countries that use the euro suggested that financing conditions were already deteriorating as a result of the Iran conflict that began in late February, even before any potential interest rate hike by the ECB.
The tightening of banks' criteria for approving loans was greater than expected and, in the case of firms, the harshest since the third quarter of 2023.
"Perceived risks to the economic outlook and a lower risk tolerance by banks were the main contributing factors, with banks indicating in an open-ended question that geopolitical and energy developments exerted tightening pressure," the ECB said.
“Some banks reported additional tightening related to exposures to energy-intensive firms and the Middle East,” the ECB added. For the three months to June, banks expect a “broader and more pronounced net tightening of credit standards.”
Demand for credit fell slightly in the three months to March, contrary to banks' own expectations, as firms cut investment, although some replenished their inventories.
"Some banks highlighted that ongoing developments in energy prices were driving increased demand for liquidity from firms, while others pointed to higher uncertainty and the postponement of investment as factors dampening demand," the ECB said.
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