Monday, March 22, 2010

Euro Area Commercial Loans Continuing to Decline Slightly

In stark contrast to the United States, the Euro Area saw only a slight decline in commercial loans outstanding in 2009 into early 2010. As shown in Slide 1, data from the January 2010 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.)
As shown in Slide 2, the European Central Bank Lending Survey highlights a continued 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. The impact of capital costs dampened easing of credit standards. Loan demand by Euro Area enterprises is improving slightly from its trough in January 2009.
Although improving, weakness in loan demand results from weakness in fixed investment and merger & acquisition activity. Demand from SMEs (small to medium enterprises) is greater than large firms because of large firms’ access to alternative forms of financing such debt securities and equity issuance.

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