Euro zone corporate lending growth slows as monthly flows dry up

FILE PHOTO: A woman walks past the European Central Bank (ECB) headquarter as the spread of the coronavirus disease (COVID-19) continues during an extended lockdown and a demand by the German government for more home office possibilities in Frankfurt, Germany, January 28, 2021. REUTERS/Kai Pfaffenbach

FRANKFURT (Reuters) - Lending to euro zone companies slowed last month as the flow of fresh credit came to a halt with the bloc back in recession and banks tightening access to credit, European Central Bank data showed on Thursday.

Lending to non-financial corporations in the 19-country euro area slowed to 7.0% in January from 7.1% month earlier, a relatively high level not far from a 10-year high of 7.4% hit in May.

But the monthly flow of credit to firms was a minus 0.2 billion euros as small rises in the bloc’s biggest countries - Germany, France and Italy - were offset by drops elsewhere, including Spain and the Netherlands.

With the pandemic shutting much of the euro zone economy, firms rushed last year to tap emergency credit lines, supported by government guarantees and central bank funding available to banks for rates as low as minus 1%.

But many have maxed out their credit lines and surveys indicate that banks are growing increasingly worried about not getting their money back, so they are continuously tightening lending standards to protect their own balance sheets.

“The economic outlook remains very uncertain for a sustained pickup in business lending to occur,” ING economist Bert Colijn said. “This also means that the euro zone investment recovery continues to face headwinds in the short-run.”

Household lending growth meanwhile slowed to 3% from 3.1%, broadly flatlining since April. The monthly flow of fresh loans, however, slowed to its lowest rate since last April.

The annual growth rate of the M3 measure of money supply, mostly a reflection of the ECB’s copious bond purchases, accelerated to 12.5% from 12.4%, in line with market expectations.

Reporting by Balazs Koranyi; Editing by Alison Williams and Nick Macfie