Italian commercial banks have drawn heavily on their reserves with the Eurosystem in order to repay the pending portion of the 28 June 2023 TLTRO III maturity.
The effects of monetary policy tightening on the distribution of bank credit in the eurozone, which have been obvious since Q4 2022, further intensified during Q2 2023. The private-sector credit impulse has fallen constantly since autumn 2022. It dropped below zero in February 2023 and hit, in June 2023, its lowest level since 2010. The non-financial company credit impulse has experienced its biggest downturn since 2008, falling from its historic summer 2022 highs into negative territory in the space of eight months (April 2023). Despite declining less overall, household-credit impulse went into the red earlier on (November 2022), as it was starting out at a lower level.
On average, over the past year, US money market funds (MMFs) have “deposited” almost USD 2,200bn in cash with the Federal Reserve (Fed) every day in exchange for the overnight reverse repurchase of Treasury securities held on the Fed’s balance sheet (Overnight Reverse Repo Facility, ON RRP). In recent months, these “deposits” have fallen sharply. On 17 July, they stood at «only» USD 1,730 bn.
The transmission of higher interbank rates to bank deposit rates is still limited in Spain.
The governor of the Bank of England announced last April a review of the British deposit guarantee scheme. A review was already under way to expedite the compensation of depositors in the event of bankruptcy.
The normalisation of the Bank of England’s (BoE) monetary policy, which began in December 2021, helped increase the cost of mortgages to households: it rose from an average of 1.5% in November 2021 to 4.4% in March 2023.
Already noticeable in Q4 2022, the effects of monetary policy tightening on the distribution of bank credit in the eurozone intensified significantly in Q1 2023.
In March 2023, the M2 measure of money supply contracted for the fifth consecutive month in the United States (-4.5% over one year).
The interest rate on new home loans for eurozone households rose by an unprecedented 177 basis points (bps) year-on-year in January 2023. It stood at 3.1% this past January compared with 1.3% in September 2021, its lowest level ever.
Banks surveyed by the ECB between 12 December 2022 and 10 January 2023 as part of its Bank Lending Survey (BLS, published on 31 January) report a tightening of the criteria for all loan categories in the fourth quarter of 2022. For companies, tightening is even the most pronounced since the sovereign debt crisis (2011).
The drawdowns of depository institutions from the US Federal Reserve’s (Fed) discount window have intensified over the past year. Their outstandings amounted to USD 4.6 bn on 18 January, certainly far from the USD 110 billion borrowed at the height of the 2008 financial crisis, but well above the USD 360 million borrowed on average for 15 years.
In June 2022, the US Federal Reserve kick-started a programme to reduce the size of its balance sheet (QT2). However, banking regulations could hinder its ambitions. The first quantitative tightening (QT1) programme, which was launched by the Fed in October 2017, had already been curtailed early due to the liquidity requirements imposed on banks. Balance sheet constraints could in turn bring QT2 to an early end. The tightened leverage standard is already reducing the ability of banks to act as intermediaries in the secondary markets for US Treasury securities while federal government financing needs continue to grow.
In 2021, 28% of housing loans made by French banks to individuals were guaranteed by mortgage. This tangible security consists of assigning the real estate asset financed as collateral to the lender, in order to offset the consequences of default by the borrower where these are not covered by any borrower’s insurance against death, incapacity or invalidity.
Our households’ property purchasing capacity indicator tracks the development in the maximum purchasable area of a representative household in France. Before rebasing (Q1 2000=100), it compares borrowing capacity expressed as an amount (calculated according to the average household income, fixed interest rates and the average duration of loans) to the price of old housing per square meter. In the provinces, Households’ property purchasing capacity was significantly higher than its 1990–2021 average (+21%) in the second quarter of 2022; however, in Paris, where the long-term average takes into account the 1990 property bubble which had undermined households’ property purchasing capacity, it was almost equal to its 1990–2021 average (+2%)
In just seven months, the share of floating rates in the total of new loans for house purchase to Italian households has more than tripled, from 15.8% in February 2022 to 60.9% in September 2022. This latest figure has not been seen since February 2015 and, at that time, the share of floating rates was in a period of sharp decline, falling from 81.1% in February 2014 to 37.7% in August 2015. The recent revival in interest in floating-rate loans for house purchase among Italian households is evidently a result of the average increase of 136 basis points (bps) in fixed-rate loans between January 2022 (1.48%) and September 2022 (2.84%). The increase recorded by floating-rate loans for house purchase since the beginning of 2022 has been more modest (55 bps)
After posting negative figures for most of 2021, the credit impulse returned to positive territory in early 2022 and rose to unprecedented levels (+3.8 points in August 2022 and +3.7 points in September 2022). This growth contrasts starkly with the sharp slowdown in the eurozone’s GDP in Q3 2022 (+0.2% quarter-on-quarter, compared to +0.8% during Q2 2022), which it undoubtedly helped to limit. After accelerating hugely since spring, in September 2022, outstanding loans to the private sector showed their strongest increase since December 2008 (+6.9% year-on-year), with outstanding loans to non-financial corporations (NFCs) showing their largest increase since January 2009 (+8.9%)
The share of new loans to Spanish households for house purchase with a fixed rate remained at a record high level of 80% in July 2022 after peaking at 81% in June 2022. This percentage is the result of a complete reversal of the financing model of residential real estate in Spain in 12 years, driven by the low interest rate environment. Fixed rates used to represent a very small and relatively stable share of total loans for house purchase before 2010 (11% on average between January 2003 and December 2009). The increase in the percentage of fixed-rate loans protects a larger proportion of borrowers against the increase in repayments resulting from interest rate hikes and preserves their creditworthiness, which is likely to curb the rise in the cost of risk for banks
In the first half of 2022, large non-financial companies in the euro area were more inclined to take out new bank loans than to issue debt securities. According to the latest data available, bond issuance remained depressed in July and August. At the beginning of 2022, the average costs of negotiable debt and business bank loans were at comparable levels (for example, 1.1% for French companies in January 2022, according to calculations by the Banque de France1). The cost of bank loans is now, on a relative basis, markedly lower (1.65%) since the surge in inflation and tensions on the bond market have led to a much more perceptible average increase in the cost of negotiable debt issued by non-financial companies (3.69% in June 2022)
With strong acceleration since spring 2021, bank loans to private sector outstanding recorded, in June, its highest annual increase since 2009 (+6.1% year-on-year in June 2022). Annual increase and credit impulse for non-financial companies (NFC) reached levels not seen since 2006 (+6.8% and +4.9%, respectively). According to the banks surveyed by the ECB in June as part of its Bank Lending Survey (published on 19 July), supply chain bottlenecks and the rise in commodity prices increased working capital requirements and strengthened demand for loans with a maturity of less than a year.
Outstanding amounts of overdrafts, revolving loans, convenience and extended credits granted by banks to Non-Financial Corporations (NFCs) in the euro area stood at EUR 535 bn as of May 2022 after five months of consecutive increases, a level comparable to May 2020. From their low point of EUR 452 bn in August 2021, NFCs' overdrafts have increased by 18.3%, following a fall of 35.6% which began in February 2015.The fall in the outstanding amounts of NFC overdrafts became more marked in 2020, probably as a result of public support measures implemented in response to the emergence of the COVID-19 pandemic
Growth in outstanding bank loans to NFCs decelerated in March 2022 (4.2%, from 4.5% in February) for the first time since September 2021 (by way of comparison, real year-on-year GDP growth was 5% in Q1 2022, from 4.7% in Q4 2021 according to Eurostat’s preliminary estimate, masking a slowdown on a quarterly basis, +0,2% q/q in Q1 2022 against +0,3% q/q in Q4 2021). Because of a substantial comparison effect (between March and August 2021, the virtual cessation of new guaranteed loans to NFCs and a first wave of loan repayments put the brakes on growth in lending), the impulse of credit to NFCs (reflecting the change, over a year, of the annual growth in outstanding loans) continued to improve – whilst remaining negative – to -1.0% in March 2022, from -2.6% in February.
The outstanding amounts of loans and advances that are still subject to banking support measures, introduced in response to the Covid-19 pandemic[1], continues to decrease in the eurozone. It was EUR444 billion in the fourth quarter of 2021, or 3.1% of total loans, from EUR494 billion, 3.5% of the total, in the third quarter of 2021. This decrease related nearly exclusively to loans subject to moratoria compliant with the European Banking Authority guidelines[2], for which preferential prudential treatment came to an end on 31 December 2021. The outstanding amounts of loans subject to public guarantee schemes and loans subject to forbearance measures almost stabilised in the fourth quarter of 2021, at EUR438 billion
The ratio of non-performing loans (NPLs) at Spanish specialised credit institutions (consumer credit, mortgages, leasing and factoring[1]) hit 6.9% in January 2022, its highest January level since 2016. Conversely, the NPL ratio for commercial banks, savings banks and cooperative banks[2] stabilised at 4.2%, its lowest level since March 2009.The increase in the NPL ratio of specialised credit institutions was due to a faster rise in the outstanding amounts of NPLs than in total loans (8.7% and 2.0% respectively between January 2021 and January 2022). Meanwhile, the fall in the outstanding amounts of NPLs at the banks, that began in 2014, has continued, against a background of stable total loans (-5.5% and -0.2% respectively between January 2021 and January 2022)
In Japan, possibly more than anywhere else, it is important to distinguish the dynamics between headline and core inflation. Headline inflation – at 0.5% in January – is bound to rise further, led by higher energy prices. By contrast, core inflation is still deeply in deflationary territory, and this trend is amplifying. Excluding perishable food products and energy, the consumer price index (CPI) declined by 1.2% year-on-year in January, the biggest decline since March 2011. The services sector even has reported the strongest deflation since 1970 (-2,8%), mainly due to the sharp drop in mobile phone charges, down more than 50% since March 2021. Medical services were also down (-0.8% y/y), as was durable household goods (-3,0% y/y), and leisure goods (-1.1% y/y)
The number of contactless card payments[1] increased by 61% in France between 2019 and 2020, according to the latest figures from the Bank for International Settlements (BIS). The Covid-19 pandemic has encouraged the increasing use of this payment method, which respects social distancing measures. In addition, in order to increase the number of transactions eligible for contactless payments, the cap was raised from EUR30 to EUR50 per payment. As a result, nearly 60% of payments at point of sell of less than EUR50 were made by contactless bank cards in 2020, worth a total of EUR71 billion (from EUR38 billion in 2019) according to Groupement des Cartes Bancaires[2]. As a result, the share of total digital payments[3] made by non-contactless bank cards fell sharply
