Growth of Business and Consumer Lending Slows in Eurozone

The growth of business and consumer lending in the eurozone slowed in November. According to the latest figures from the European Central Bank (ECB) published on Thursday (Dec. 29), the annual growth rate of adjusted loans to nonfinancial corporations decreased to 8.4% in November from 8.9% in October.

The equivalent statistics for household loans also show a decline in lending, albeit a less severe one. The annual growth rate of adjusted loans to households stood at 4.1% in November, compared with 4.2% in October.

As PYMNTS has previously reported, the consultancy EY predicts that lending will decline by 1.8% in 2023 after rising by 4.6% this year.

As a result of the decline in lending, the M3 measure, a broad indicator of liquidity in the economy fell to 4.8% in November from 5.1% in October.

The slowing down of bank lending follows successive interest rate hikes by the ECB as it has attempted to stem eurozone inflation this year. Most recently, it raised the rate it pays on bank deposits by 50 basis points to 2% in December.

While 2022 has marked the end of a decade of negative euro interest rates, the ECB’s raises have been less aggressive than equivalent moves made by the Bank of England and the U.S. Federal Reserve.

As well as having an effect on businesses, alternative lenders are also suffering from rising interest rates. Without the customer deposits that banks use to issue loans, FinTech lenders, buy now pay later (BNPL) firms, car sellers and non-bank mortgage lenders will need to pass on the increased cost of borrowing to their customers.

In a sign that the slowdown of bank lending is already hurting alternative lenders, shares in the artificial intelligence (AI)-lending platform Upstart plunged more than 20% in November after the company said rising interest rates and a slowing economy were behind a significant dip in the number of new loans it was issuing.

“Higher interest rates and significantly elevated risk in the economy means we’re approving about 40% fewer applicants than we would have a year ago,” the company’s co-founder and CEO Dave Girouard told analysts during a Q3 earnings call.

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