FRANKFURT (Reuters) – Banks in the eurozone restricted access to corporate credit in the third quarter and believe it will tighten further as they become increasingly concerned about a new wave of the coronavirus pandemic, according to a survey by the European Central Bank revealed on Tuesday.
As governments curtail their activities again, banks are concerned about rising credit risk. The pandemic challenges expectations for a relatively quick recovery and could test government obligations to maintain loan guarantees.
Closer access to credit could also weigh on growth in the 19-country eurozone, which in turn could lead the ECB to provide more incentives to keep companies liquid until restrictions are lifted, possibly next year if a Vaccine is used.
“For the fourth quarter of 2020, the banks expect a further tightening of the credit standards for companies. This reflects concerns about the economic recovery as some sectors remain fragile and uncertainties about the extension of the public finance support measures, ”the ECB said in a statement.
Banks already restricted access in the third quarter, requested better collateral and sold loans with higher margins, the ECB said.
However, the restrictions are not yet showing up in demand, suggesting that companies will accept stricter terms in exchange for cash.
Lending to non-financial corporations rose 7.1% in September, unchanged from June, and not far below a 10-year high of 7.3% in May.
However, banks expect demand for corporate loans to weaken in the last three months of the year, with more interest coming from small and medium-sized companies rather than large companies, the ECB added.
“Are we facing a credit crunch? In some sectors and for some companies, ”said ING economist Carsten Brzeski. “This will be the challenge for the ECB and the governments. It is difficult to tailor (ECB credit facilities) for hotels, restaurants and airlines. ”
While closer access to credit is likely to worry ECB policymakers, the deterioration is not seen serious enough to provide further impetus when the ECB meets on Thursday, especially as the bank has ample untapped firepower.
Still, most ECB observers expect the bank to step up its stimulus measures in December, when new economic outlooks suggest a slower recovery and even point to the risk of a double-dip recession.
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