Eurozone credit conditions will tighten in 2013

Ben Southwood
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EUROZONE lending will be squeezed into a 2013 decline by bad loans and red tape, Ernst & Young forecast this morning.

Non-performing loans will rise from 6.8 per cent of the total in 2012 to reach 7.6 per cent in 2013, the accounting firm’s financial services team predicts, the highest fraction since the formation of the Eurozone.

Combined with deleveraging forced by regulation, and the impact of slow growth or recession, loan books will be forced into decline over the next 12 months, Ernst & Young believes.

“The outlook for new lending to consumers and many corporates is pretty dire,” said Ernst & Young’s Andy Baldwin, with figures expected to fall across the board.

The total stock of loans is predicted to fall from €12.3 trillion (£10 trillion) to €12.1 trillion, driven by a €25bn fall in mortgage lending and a €7bn fall in consumer credit. The stock of business lending will rise just €9bn, the firm expects. This deleveraging will see average loan-to-deposit levels fall from a pre-crisis peak of 124 per cent in 2006 to 111 per cent at the end of 2012. By 2016 it will have dropped to just 104 per cent.

And the overall figures hide further divergence between northern and southern Europe, Ernst & Young says. It predicts 2013 will actually see higher lending in France, Germany and the Netherlands, but significant falls in Italy and Spain. Between 2011 and 2013 the former three will have enjoyed a lending boost totalling €108bn whereas the latter two will see total credit drop off by €143bn, according to the accounting partnership’s estimates.