Friday, September 25, 2009

Euro Area Commercial Loans Holding Steady in 2009

In stark contrast to the United States and Canada, the Euro Area has only seen a slight decline in commercial loans outstanding in 2009. As shown in Slide 1, data from the July 2009 European Central Bank Monthly Bulletin shows a reduction in short-term loans in favor of medium to longer term loans. Loan demand is down overall due to a reduction in inventory investment and merger & acquisition activity. This reduction is offset by enterprises locking in long term funding at lower interest rates. (Double click on image to enlarge.)

The month-over-month data in Slide 2, highlights the Euro Area’s shift from short term loan maturities into longer-term loans. In fact, as of July 2009, loans with maturities over 5 years are at their highest historical level.

As shown in Slide 3, the European Central Bank Lending Survey highlights an easing of credit standards for enterprises of all sizes since their peak in late 2008. This easing is driven by supply-side factors, such as banks’ access to market financing and banks’ liquidity position. Concerns over economic conditions continue to dampen easing of credit standards. Loan demand by Euro Area enterprises is improving slightly from its trough in January 2009.

Next week I will take a look at credit costs and credit quality.

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