Lower demand for new loans
Banks anticipate borrowing interest from business to decrease further in the second quarter
Banks are expecting a decrease in demand for business loans, especially from small and medium-sized enterprises, in the second quarter of the year, as a result of the rise in interest rates and the increase in the cost of money, which discourages borrowing.
This stems from a the results of bank lending survey the Bank of Greece published on Tuesday, according to which total demand for loans in January-March decreased with an emphasis on short-term financing. The survey showed that “a key factor influencing the decrease in demand was the higher level of interest rates on loans.”
The forecast for the next quarter is that overall loan demand, mainly from SMEs, is expected to decline further, mainly as a result of demand rather than a tightening of criteria on the part of the banks.
Already, despite the recovery in new financing observed in March, the overall figures for the first quarter show a decrease in the net flow of financing by 823 million euros in total private sector loans and by 228 million euros in loans to companies. It is recalled that the net financing flow captures new disbursements after repayments of existing debts, and the negative sign indicates that repayments exceeded new lending. The phenomenon of high repayments is found in sectors with high liquidity, such as energy and especially shipping, and according to bank executives, it has led “to the closing of existing loan positions even with loan prepayments.”
The slowdown in the rate of credit expansion had been discounted by the managing director of Eurobank, Fokion Karavias, speaking at the Delphi Economic Forum. He attributed the decrease in demand for loans to the higher interest rates. Karavias pointed out the phenomenon of many customers using their surplus liquidity to repay loans, and for this reason, as he had estimated, “in the first quarter of the year there will be a negative change in loans.” He emphasized, however, that despite the fact that credit growth in 2023 will be lower than that of 2022, this will not lead to a credit crunch.
