Eurozone bank lending growth stabilising - ING

Eurozone bank lending growth appears to hit a 2½% speed limit as strong growth of consumer credit in southern countries stands out, according to Teunis Brosens, Senior Economist at ING.

Key Quotes

“Eurozone bank lending growth to households held steady at 2.6% YoY in June, while bank lending to non-financial businesses fell to 2.1%, from 2.5% previously. Bank lending to both households and businesses has been hovering around the 2.5%-mark for a few months now. Given the ECB has the pedal to the metal, we might be hitting the current Eurozone bank loan growth speed limit.”

“At the same time, markets for bank lending remain strongly segmented. Belgium and France are seeing most buoyant loan growth for both households (mostly mortgages) and businesses. In Germany too, lending to households has been gathering more steam. Mortgage growth is now running at 3.8% YoY there, business lending is stable at 3.1%.”

“Developments are very different below the Alps and the Pyrenees. On the Iberian peninsula, bank mortgage lending is still shrinking, at -2.8%. Some compensation is coming from consumer credit, increasing at 17% YoY in Spain and a more moderate 9.9% in Portugal. Italy is also seeing strong consumer credit growth (+8.7%), paired with moderate mortgage lending (+2.3%).”

“Headline M3 money growth increased by 5.0% YoY in June, up slightly from 4.9%. While pre-2008 money growth was primarily driven by bank lending to the private sector, the steady growth of c.5% of the last two years is primarily related to QE, with increasing ECB government bonds holdings being by far the biggest counterpart to money growth.”

“Narrower M1 money growth accelerated to 9.7% from 9.3%. M1 used to be one of the best leading indicators for the Eurozone business cycle in normal times, however its predictive qualities in times of QE and negative rates are untested. That said, M1 growth points to a continuation of the current GDP growth trend for the remainder of the year.”