Market Analysis

During the last quarter, Eurozone banks relaxed their criteria for approving mortgages for the first time in over two years, though demand for credit continued to decline due to high borrowing costs and a stagnant economy, according to a European Central Bank survey released on Tuesday.

The ECB's efforts to combat inflation by raising interest rates have halted credit growth in the 20 countries sharing the euro currency.

Although banks showed some signs of easing their cautious stance, particularly in extending home loans, both households and businesses displayed limited interest in taking on new debt, as indicated by the ECB's quarterly Bank Lending Survey.

While banks reported a slight relaxation in standards for approving home loans and a lesser-than-anticipated tightening in access to corporate credit, they also noted a significant decrease in demand for credit from businesses, contrary to expectations from three months prior. Demand for housing loans also saw a modest decline.

Factors such as higher interest rates, reduced fixed investment among firms, and decreased consumer confidence among households were cited as dampening loan demand, according to the ECB.

Looking ahead to the next quarter, banks anticipate a slight improvement, with only a modest decrease in demand for corporate loans and a potential increase in demand for household loans.

As banks anticipated rate cuts from the ECB, interest rates on new mortgages decreased, signaling a potential end to banks' record profits.

"The ECB's anticipated interest rate adjustments in the coming six months are expected to negatively impact overall bank profitability, primarily due to provisions and impairments," the ECB stated.

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