ING Group reported on Monday that the growth in lending by households and businesses in Europe has slowed, indicating a slowdown in the transmission of monetary easing via the loan channel.
ING, in a recent report, said that to better reflect current developments it prefers analysing shorter timeframes for growth in bank lending, as opposed to the European Central Bank’s annual reporting.
In the report, Bert Colijn said, “We observe some weakening of monetary transfer in the figures.”
The European Central Bank rate cut appears to be less effective due to the reduced economic uncertainty.
Colijn says that if this trend continues, it would introduce a more dovish viewpoint to September’s discussion about a possible rate cut.
The EU’s bank lending
For the first time in July last year, corporate bank lending declined from April to May.
The average three-month growth rate is consistently decreasing, despite its volatility.
ING stated that this suggests the European Central Bank (ECB’s) move to neutral rates of interest hasn’t yet resulted in a significant increase in bank lending to corporates.
The growth in bank lending to consumers is a notable departure from established patterns.
This lending segment has experienced significant growth throughout 2024.
Shift in market dynamics
This year’s growth has plateaued at just over 0.2% per month.
Colijn stated that this stabilisation after a rapid period of expansion could indicate a possible shift in the market dynamics, or maturation of the lending sector.
It would take further analysis to determine the reasons behind this plateau, and the potential consequences for the economy.
In May, growth was at its lowest level since November.
Colijn said:
We’re experiencing a general leveling off, suggesting that the monetary ease conditions have not been as effective in translating through to lending channels.
Borrowing Reluctance
The April survey of bank lending shows that businesses are becoming increasingly reluctant to borrow money for investments. This is due to the uncertainty in the market.
According to ING, the rise in uncertainty that has occurred since May explains logically a decline in borrowing.
Colijn continued, “The question that remains is for how long will this insecurity continue to dampen the borrowing appetite of businesses and thereby reduce investment within the Eurozone’s economy.”
It is expected that the ECB will stop its rate reductions in July.
Colijn says that the primary objective of keeping rates at the current level in July is to better understand the economic environment amid uncertainty rather than to evaluate the immediate effects of the policies currently being implemented.
This could be another reason for the Fed to cut rates in September if economic uncertainty is so high that it begins to affect lending and investments.
The post ECB rates cuts weaken impact on European Lending, Says ING could be updated as new information becomes available
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