Eurozone banks have increasingly tightened their lending standards for businesses in the final quarter of 2024, and they expect further tightening in the early months of 2025, according to the latest survey by the European Central Bank (ECB), cited by Reuters.

The survey indicated that credit growth remained stagnant for most of 2024, as the anticipated economic recovery failed to materialize. Weak consumption, a two-year recession in the industrial sector, low government spending, and poor export demand all contributed to the lack of growth. Although banks had anticipated tightening their credit standards, the degree to which they did so was greater than expected, despite the generally weak demand for credit.

The ECB attributed the tightening of credit standards to concerns about heightened risks related to the economic outlook, specific industries, and individual firms. Banks' lowered tolerance for risk was another key factor in this shift. The tightening was especially evident in sectors such as commercial real estate, wholesale and retail trade, construction, and energy-intensive manufacturing.

While banks kept credit standards for mortgage loans relatively stable, this was considered disappointing, as they had initially expected a significant easing of lending conditions. On the other hand, demand for business loans remained subdued, only slightly supported by lower interest rates. Housing loans, however, saw a notable recovery due to reduced lending margins and falling interest rates following a period of decline in previous years.

Demand for consumer credit also saw a slight increase, but with tighter lending conditions, as 6% of banks reported heightened risks in this sector. Looking ahead, banks are anticipating further tightening of credit standards for both households and businesses, suggesting that credit growth will remain sluggish throughout 2025.

The ECB's survey also revealed that while banks expect business loan demand to remain steady in the first quarter of 2025, demand for housing loans is projected to rise. Banks predict that their own access to financing will stay relatively unchanged, while their focus shifts to addressing weak economic growth after inflation has largely been subdued. With interest rates having been reduced four times in 2024, further rate cuts are expected to continue into 2025, with the first anticipated to occur in the upcoming ECB meeting.