Credit demand expected to surge

CREDIT demand for corporate activity on a Europe-wide basis is expected to surge over the current quarter, following inactivity in bank lending.

The latest quarterly bank lending survey from the ECB covering the three months to the end of June showed credit flow was tight, partially prompted by a 2% net fall in demand from the corporate sector.

However, Ernst & Young said this quarter is likely to see higher demand, bolstered by a rise in the appetite to fund inventory purchases and in general mergers and acquisitions.

It expects demand levels for bank lending to increase by nearly 30% this quarter. “There are some clear differences from what we’re seeing in the market between how larger and smaller borrowers are able to access credit.

“Larger businesses have a wider variety of options — bonds for example. Medium and smaller-sized businesses will find the expected tightening of supply and the overall rise in demand will make access to funding more difficult in coming months,” according to Ernst & Young’s Luke Reeve.

The Central Bank says corporate credit standards remained unchanged, while mortgage lending tightened marginally in the second quarter.

“The demand for loans from enterprises and households weakened across all categories examined. In contrast to the previous two rounds of the bank lending survey, access to wholesale funding markets deteriorated across the maturity spectrum with the exception of the market for credit risk transfer,” the Central Bank added.