Bank lending has been a crucial aspect of the European economy, particularly since the global financial crisis. However, the ongoing COVID-19 pandemic and subsequent economic downturn have raised concerns about the stability of bank lending in the eurozone. To address these concerns, UBS Research has provided an in-depth analysis of private sector credit growth in August 2023.

According to UBS economist Reinhard Cluse, private sector credit growth remained stable at 2.8% year-over-year (y/y) in August. This growth was driven by loans to non-financial corporates and households, which increased by 0.2 percentage points (pp) and 0.1 pp, respectively. Sequential momentum in private sector loan growth, measured by a three-month moving average of monthly changes, remained stable.

One notable development in bank lending is the decline in bank lending rates. Corporate loan rates have decreased by 176 basis points (bps) from their October 2023 peak, while mortgage rates fell slightly to 3.28%, but remain nearly 200 bps above their 2021 lows. These trends suggest that banks are becoming more accommodative, which could help boost economic growth in the eurozone.

Private sector deposit growth also held steady at 3.2% y/y in August. While this growth rate is lower than the peak reached in early 2022, it remains relatively stable and suggests that households and businesses are still willing to hold deposits in banks. Meanwhile, M3 growth slowed to 2.9% y/y in August, while M1 remained stable at 5% y/y.

Overall, the stability of bank lending growth in the eurozone is a positive sign for the economy. However, it is important to note that the pandemic and economic downturn have had a significant impact on the eurozone’s economy, and recovery may take time. As such, it will be crucial to monitor developments in bank lending and deposit growth moving forward to gauge the health of the eurozone’s financial system.