24 October 2023

• Credit standards tightened further, and more than expected by banks, across all loan categories
• The demand for loans by firms and households continued to decrease strongly
• Ongoing central bank balance sheet reduction contributing to tighter lending conditions
• Positive impact of policy rate hikes on net interest margins expected to gradually abate

According to the October 2023 euro area bank lending survey (BLS), credit standards – i.e. internal guidelines or loan approval criteria of banks – for loans or credit lines to enterprises tightened further in the third quarter of 2023 (net percentage of banks of 12%, after 14% in Q2 2023; Chart 1). Cumulative net tightening since 2022 has been substantial, which is consistent with the ongoing significant weakening in lending dynamics. The net percentage of banks reporting a tightening moderated slightly compared with the previous quarter but was slightly higher than banks had expected in the previous quarter. Banks also…