First signs of the accelerating credit contraction ending The crisis that arose as a result of the European Central Bank (ECB) tightening monetary policy to combat high inflation. Between October and December, Spanish banks tightened again for the seventh consecutive quarter (since March 2022). award criteria which leads them to decide whether to grant a loan, e.g. necessary conditions for them (such as interest rate, amount, maturity and required guarantees). Demand also fell, as it has since January last year. But in any case The decline was “moderate and less intense” more than in the summer.
This trend is consistent with the ECB’s predictions about how monetary policy works. Thus, interest rate increases are primarily transferred to the conditions under which economic units (states, companies and households) obtain financing for their expenditures and investments. In fact, the Central Bank said this: The current cycle of increases in the price of money has been “quickly and strongly” transferred to financial conditionsEven more than I expected. This hardening then comes into action as the demand for the agents decreases. This is exactly the situation that has been happening since the middle of last year and is expected to continue at the beginning of 2024. Finally, most of the impact on inflation will occur throughout this year and next.
In this regard, Spanish banks hope to: Loan supply in the household loan segment will shrink again between January and March For consumption and other purposes, there will be no change in other forms (mortgages and loans to companies). Regarding the demand for funding, a new generalized decrease in applications is predicted, with a density “similar to or slightly greater” than that recorded between October and December. In other words, the credit tap will continue to close, but everything indicates that it will continue to close after a certain period of time. slightly more moderate tempo.
Increase in margins
This is also reflected in the quarterly bank credit survey published this Tuesday by the Bank of Spain. The document reveals that lending criteria for consumption loans to households tightened only between October and December, while they remained stable for mortgages and loans to companies. As for the conditions, “slight increase” in margins in corporate finance and mortgage segmentsConsumer loans contracted slightly. Looking at the percentage of rejected applications, there was an increase in consumer credit, while it remained stable for the rest.
According to banks, demand has fallen again due to higher rates. In the case of households, this can also be explained by lower consumer confidence, greater use of savings and the worse outlook for the housing market. However, in the case of companies, the decline was partially offset by increased needs for financing inventories and working capital. While demand decreased in all sectors except trade, the contraction in supply was seen most in the energy-intensive industry. energy, construction and real estate activities (granting criteria) and manufacturing, services and trade (conditions).
ECB strategy
The survey results are a reflection of the ECB’s strategy: The eurozone monetary authority increased reference interest rates at an unprecedented pace and on a scale of 4.5 percentage points between July 2022 and September 2023. The main interest rate increased from 0% to 4.5%, deposit facility – the interest paid on money you hold in banks, the most relevant in the current context – from -0.5% (which gave them back less than what they kept for them) to 4%. It came out. . However, the Central Bank opened the door. Start reducing rates from summerThis may also help explain why credit line tightening is starting to ease.
The central bank’s goal is to cool the economy to reduce high inflation through the dual means of making it more difficult to access credit while also reducing demand for credit from companies and families. Successful: The average mortgage rate, which accounts for 72.5% of family loans, increased by 2.58 points to 3.68% in November since December 2021, when the monetary authority began to tighten monetary policy. The rest of loans to households increased by just over one percentage point (to 7.05%). This means that the credit balance of individuals decreased by 5 billion 883 million euros to 684 billion 856 million euros. A similar situation occurred in loans given to companies.