The Eurozone lenders, facing an asset quality review (AQR) and stress test, are being careful with their lending to make sure their balance sheets appear in good shape.
EY expects lending will grow by just 0.5 per cent this year, down from the 1.4 per cent previously predicted.
The analysts fear the slowdown could hit the economic recovery in the Eurozone.
“Given how dependent consumer spending and SME financing are on bank lending in the Eurozone, the AQR could have a material economic impact,” said EY’s Andy Baldwin.
“The hope is it clears the decks for banks to support more sustained growth, but, if there is a large capital shortfall, the AQR could deliver a material knock, enough to prolong low growth or stagnation.”