Credit expansion shrinks in June

The annual rate of credit expansion continued to slow last month, although some improvement was seen in the second quarter, according to Bank of Greece data released yesterday. The growth of loans issued declined from 9.4 percent in May to 7.6 percent in June, on an annual basis, while in December 2008 the rate had stood at 15.9 percent. This lends weight to forecasts of an annual rate of 5 percent or lower for the whole of 2009. The decline in the financing growth rate concerns both households and businesses, whose total debt declined from 250.8 billion euros in May to 249.8 billion euros in June. The drop was greater for households, with the credit expansion rate dropping to 6.2 percent last month from 7.3 percent in May and 12.8 percent in December. The growth of corporate loans contracted to 8.8 percent in June from 11.4 percent in May and 13 percent in December. However, the quarterly data is more encouraging as it shows a small rebound in credit expansion to the private sector. Bank of Greece figures showed that credit expansion in the April-June period strengthened to 4.9 percent relative to the first three months of the year, from 2.9 percent growth in Q1 compared with the previous quarter. Corporate loans increased by 6.4 percent in Q2 from 4 percent in Q1, while household financing came to 3.1 percent in Q2 from 1.6 percent in Q1. These developments are also reflected by the net flow of loans to businesses and households, that is, new loans disbursed minus paid-back loans. In June, the net flow came to 923 million euros against 765 million euros in May and 446 million euros in April, while debt to banks dropped to 132 billion in June from 133.18 billion euros in May. The three most important sectors in terms of bank financing – industry, commerce and construction – all posted a significant slowdown. In contrast, financing to transport and communications (excluding shipping) posted a higher growth rate in June.