Lending growth in the Eurozone remains weak

Last year, banks‘ loans to companies, private households and governments grew in the Eurozone by 0.9 percent to EUR 10,774bn. Private loans for house purchases, which rose by 2.4 percent, accounted once again for the highest growth contribution. In the segment of loans to corporate clients, the long years of contracting loan volumes came to a halt, with corporate loans climbing in 2016 by 0.6 percent. In contrast, the volume of loans to regional and local authorities has further declined. All in all, the renewed growth in customer loans that was already evident in 2015 has stabilised, but there are still no visible signs of accelerating momentum on the European credit market.

 Furthermore, great differences could be noted in developments between individual national markets: the Europe-wide growth was driven almost entirely by banks in France and Germany which recorded above-average gains in their respective loan volumes. In contrast, banks‘ lendings in the countries of southern Europe, such as Spain, Italy, Portugal, Greece and Cyprus, continued to decline. This is especially the case regarding the corporate loans granted in these countries. In Italy in particular, the crisis in the banking sector, with an extremely high number of defaulting loans, is responsible for the negative development.

 These underlying trends can be expected to continue this year, with private loans for house purchases remaining the key drivers. This is indicated by the, in part, sizeable increases in building permits in Germany and other European countries and by the upturn on housing markets. The recovery in corporate lending markets evident in 2016 is also likely to continue, profiting from the solid economic development. All in all, therefore, lending growth can be expected to accelerate slightly in the Eurozone. However, over a long-term horizon and particularly given the extremely low interest rates and the huge efforts being undertaken by the European Central Bank with regard to its monetary policy, lending growth will most likely remain fairly modest. Furthermore, as long as the difficult situation facing banks in Italy and other south European countries remains unsolved, there are unlikely to be any signs of an end to the regional differences between the north and the south of the Eurozone.

 

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