Credit expansion continues to shrink
Funding by banks to households and enterprises shrank to its lowest level of the year to date in October, vindicating estimates for a decline in the rate of credit growth to 3 percent by the end of the year, according to data released by the Bank of Greece. This has been the first time that the data has showed a drop in the net flow of funding, that is the loans issued minus the amount repaid by borrowers, by 60 million euros. Consequently borrowers repaid more than was borrowed last month, with data analysis showing that this is mostly due to repayment by companies and not households. Mortgage credit remains the main factor pushing credit expansion to the 4 percent level, but estimates for 2010 speak of estimated expansion of about 5 percent. Despite the fact that the lending criteria have become far stricter, banks are still issuing mortgage loans amounting to 500-700 million euros on a monthly basis. Although this is dramatically lower than the level recorded in 2008, when housing loans issued reached 1-1.5 billion euros per month, banks insist that this is clear funding which does not rely on state guarantees or subsidies, as is the case with corporate loans. As regards consumer loans, the data show a high rejection rate for applications, as much as 70 percent, as banks adhere to the recommendations by the Bank of Greece for stricter criteria. Bad loans in consumer credit are expected to close the year at 12 percent, and will likely soar to 16 percent in 2010. In housing credit, they will end the year at 7 percent and reach 9 percent next year.
