Eurozone firms rush for credit as households hold back: ECB

Eurozone firms' demand for credit "surged" as the coronavirus pandemic hit, the European Central Bank said Tuesday, while the outbreak is expected to dampen mortgage demand to historic lows.


People wearing face masks walk in front of a big Euro sign in Frankfurt am Main, western Germany, as the European Central Bank (ECB) headquarter can be seen in the background on April, 24, 2020 amid the coronavirus COVID-19 pandemic. (Photo: AFP)

"Demand for loans or drawing of credit lines surged in the first quarter... on account of firms’ emergency liquidity needs in the context of the coronavirus pandemic and the lockdown of large parts of the economy," the ECB said based on a quarterly survey of 144 banks.

Meanwhile growth in demand for house purchase loans slowed sharply in January-March compared with the previous quarter.

The poll found banks expect mortgage demand to shrink to levels "similar to the realised level in the second half of 2008", after the collapse of the Lehman Brothers bank.

The regular survey found government and central bank interventions helped hold banks back from locking down businesses' access to credit as in previous crises.

Compared with the financial and sovereign debt crises of the late 2000s and early 2010s, banks imposed only a "small" tightening of their standards for which companies should receive loans, the ECB said.

Looking ahead, banks expected further growth in business lending demand and a "considerable net easing" of standards, with a bigger impact from government steps to fight the pandemic such as massive guarantees for business loans.

The ECB added that its own measures, including pumping up government and corporate bond-buying to 1.1 trillion euros ($1.2 trillion) this year and massively extending a programme of cheap credit to banks, "had an easing impact on bank lending conditions and a positive impact on lending volumes".

"Firms' demand for bank loans is going through the roof," Pictet Wealth Management strategist Frederik Ducrozet tweeted.

"The ECB's credit easing measures are crucial to the ongoing financing of the real economy".