S&P: Europe’s ‘vicious circle’ hampers lending

Europe and its banks are trapped in a vicious circle of low growth, low lending and low rates, claims Standard & Poor’s (S&P).

The credit ratings agency (CRA) bases the assertion on European Central Bank (ECB) data compiled by S&P Global Market Intelligence.

The figures show that there has been little change in the size and structure of European Union (EU) lending since April 2011, with total lending as of April 2016 sitting at €23.75 trillion, just a fraction higher than the €23.55 trillion recorded five years earlier.

S&P fig1

Loans to non-financial corporations fell over the period to €5.3 trillion from €5.8 trillion, reflecting a muted outlook for business development.

S&P fig2

By contrast with the overall picture, individual country lending has been quite volatile, says S&P. In the five years to April 2016, Spain experienced significant deleveraging following the end of its property bubble, with lending contracting by 27%. Lending was virtually flat in Germany and Italy, while France saw 8.9% and the UK 4.2% growth.

Central banks, in particular the ECB, are striving to pick up the slack through low rates and nonstandard measures such as quantitative easing. These have been particularly controversial in Germany, but have been strongly defended by ECB president Mario Draghi.


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