Banks in the eurozone tightened credit conditions

The Bank Lending Survey published by the European Central Bank (ECB) showed that banks in the eurozone tightened their lending conditions in the third quarter and demand for loans fell. While this development is associated with banks' increased risk perception and decreased risk tolerance, it was stated that geopolitical tensions and fluctuations in the energy market increased the pressure on borrowing standards.

According to the survey results, the level of general interest rates played a decisive role in the decline in credit demand. It was observed that especially small and medium-sized enterprises' demand for fixed investments weakened and they turned to alternative financing sources. These data are considered a critical indicator ahead of the monetary policy meeting where the ECB is expected to keep interest rates steady.

Assessment: The ECB's carrying the deposit rate to the upper limit of the neutral range with two interest rate hikes since June continues to exert pressure on economic activity. Inflation remaining above the 2 percent target and the rise in long-term bond yields strengthen the adverse winds on the regional economy.