Banks shift to corporate credit

Expansion built on household loans is a thing of the past, with enterprises taking precedence for lenders By Yiannis Papadoyiannis

The economic crisis and the resulting credit crunch are leading to a major shift in the growth model pursued by banks, which for more than a decade relied on an aggressive household loan policy.

Bank officials agree that as the credit system follows the country’s economy out of the crisis, it will increasingly rely more on loans to corporations and much less to households, which in the previous decade spearheaded the credit expansion of the local banking system.

From December 2009 to June 2014 the balance of loans to households has declined by about 20 billion euros or 16.6 percent, to 99.4 billion euros. Mortgages shrank from 80.2 billion euros in December 2009 to 70.2 billion last month, while the balance of consumer loans dropped from 36.02 billion euros in end-2009 to 27.7 billion at the end of last month.

An notable decline has also been recorded in credit cards, associated to the slump in private consumption. The credit card balance came to 5.66 billion euros in end-June, dropping 40 percent from the 9.54 billion in December 2009.

In the previous decade, however, household loans soared from 16.8 billion euros in December 2000 to 119.28 billion in December 2009. Banks had taken such an aggressive approach to home loans that they were granting mortgages worth over 1 billion euros every month. This supported the profits and the strong growth of banks inside and outside Greece in that decade.

The time for this model is now over, bank officials stress. Lenders will instead rely on corporate credit, keeping loans to households at low levels. “Loans to healthy enterprises – small, medium-sized or big – will feed the new cycle of credit expansion after the major deleveraging of the last five years. It will take much more time before we see substantial flow of credit for mortgages again,” said one bank official.

He added that the situation will remain difficult in consumer loans, as banks first have to deal with the European Central Bank stress tests and the huge stock of nonperforming loans.