Italian banks lead new euro credit crunch

Tim Wallace
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BANK lending fell again in the Eurozone this year, and analysts at EY expect a renewed crunch across much of the currency union in 2015.

Business lending fell 1.4 per cent this year, even though it is eight years since the financial crisis struck.

And consumer lending slid another 0.8 per cent.

Overall the Eurozone economy remains very weak – GDP is forecast to grow by just 0.8 per cent this year and 1.3 per cent in 2015, limiting both demand for bank loans, and banks’ willingness to lend.

And what little growth their is remains polarised, with countries like Spain showing signs of recovery but Italy and France struggling.

Banks had to clean up their books ahead of the autumn’s stress tests, but regulators still found a hole of almost €10bn (£8bn) in the banks’ capital buffers.

The worst hit major economy is Italy – new business loans fell to less than half the level seen in 2008.

Lending in France only grew by 0.8 per cent this year and is expected to remain constrained by the sluggish economy over the coming years.

German business lending was flat this year, up only 0.1 per cent, but it is expected to grow at 5.2 per cent in 2015 – almost twice as fast as the 2.7 per cent growth expected in France.

After a tough restructuring this year, Spanish banks are expected to bounce back in 2015. Their lending contracted by 5.7 per cent this year, but is expected to grow by 1.8 per cent in 2015 and 3.7 per cent in 2016.

“To really lift the Eurozone economy we need to stimulate demand for lending and appetite for growth in the real economy. The ECB has already engaged in ‘QE-Lite’ – the question is what further steps can it take?” asked EY’s Andy Baldwin.

“The hope is the new Commission will help financial services play its full part in the recovery through a more balanced and measured approach to regulation and giving some serious thought to encouraging greater diversity in long-term funding.”