2 May 2023

• Banks reported a further substantial net tightening in credit standards for loans to firms and for house purchase
• Demand for loans decreased strongly, driven by rising interest rates, lower fixed investment and weakening housing markets
• Ongoing reduction in central bank balance sheet linked to TLTRO repayments and end of full APP reinvestments contributing to weakening lending dynamics

According to the April 2023 euro area bank lending survey (BLS), credit standards – i.e. banks’ internal guidelines or loan approval criteria – for loans or credit lines to enterprises tightened further substantially (with the net percentage of banks reporting a tightening standing at 27%) in the first quarter of 2023 (see Chart 1). From a historical perspective, the pace of net tightening in credit standards remained at the highest level since the euro area sovereign debt crisis in 2011. Banks also reported a further substantial net tightening of their credit standards for loans to…