FRANKFURT (Reuters) – Eurozone banks expect emergency loan demand to rise again in the second quarter, and they are likely to meet this with simpler credit standards as government guarantees and liquidity measures kick in, the European Central Bank said on Tuesday.
With much of the continent on hold to contain the spread of the coronavirus pandemic, the eurozone economy could shrink by a tenth this year, and companies are looking for funding to stay afloat until the economy reopens.
Credit standards or in-house credit approval criteria for corporate lending were tightened in the first quarter, but the deterioration was “minor” compared to the global financial crisis and the bloc’s subsequent debt crisis, in part due to government measures, the ECB added.
The central bank’s liquidity measures and government guarantees will come into full effect in the second quarter, so banks expect a significant easing of their credit standards in the three months to June, the ECB added based on a survey of 144 lenders.
Among the largest eurozone countries, corporate credit guidelines were tightened most in Germany and Italy, while they remained largely unchanged in France.
“The demand of companies for loans or the use of credit lines increased by leaps and bounds in the first quarter of 2020 due to the companies’ emergency liquidity requirements,” announced the ECB. “In the second quarter, corporate credit demand is expected to continue to rise, reaching the highest net balance since the survey began in 2003.”
Household borrowers are having a harder time as credit standards tightened in the first quarter and further deterioration is likely in the second quarter, the ECB added in a survey that peaked between March 19 and April 3 the European coronavirus lockdown.
Reporting by Balazs Koranyi; Editing by Francesco Canepa, Kirsten Donovan