Loan, deposit growth slows across Europe as recessionary fears mount

Lending and deposit growth slowed across Europe during the third quarter, reflecting tighter credit conditions and the deteriorating economic outlook.

Total loans at French monetary financial institutions, or MFIs, grew 4.6% for the year to Sept. 30 to €7.520 trillion, according to European Central Bank data provided by S&P Global Market Intelligence. This was slower than the 10.5%, 14.9% and 6.6% growth rates in each of the prior three years, respectively.

Loan growth also slowed significantly in Spain, to 3.7% from 6.8%, and the Nordic region, to 2.2% from 10.5%. Total loans at Italian MFIs fell 1.64% year over year to €2.550 trillion. Among the regions sampled, only Germany and Benelux posted higher loan growth compared with the previous nine-month period.

Eurozone lenders tightened their credit standards significantly in the third quarter, according to the European Central Bank's latest bank lending survey. Deteriorating economic conditions and the prospect of a recession caused banks' risk tolerance to decline and risk perceptions to increase, the survey of 153 institutions found.

The impact was felt most keenly in the mortgage segment. The level of credit standards tightening for housing loans was the highest since the fourth quarter of 2008, the ECB found.

The immediate outlook is bleak, with banks anticipating a deterioration in access to funding sources, as well as further tightening of credit standards and a reduction in loan demand from both businesses and consumers.

* Access ECB data on French MFI loans. * Access ECB data on German MFI deposits.

Deposit growth also dipped in the first nine months of the year across most of the regions sampled. The slowdown was most pronounced in the Nordics, where deposit growth dropped to 1.2% from 9.9% in the prior-year period. Only Germany posted higher deposit growth year over year.

Among Europe's biggest banks, Nordic lenders had the highest volume of loans as a proportion of deposits in the third quarter, led by Svenska Handelsbanken AB (publ), Danske Bank A/S and Nordea Bank Abp, though all three reduced their loan-to-deposit ratios for the third consecutive year.

Nordea bucked the regional trend of slower deposit growth. It recorded a 7% increase year over year in the third quarter, outweighing a 2% rise in loans. The deposit increase was heavily influenced by large energy corporates that enjoyed strong cash inflows and sought to stock up on liquidity, CFO Ian Smith said on an earnings call.

U.K.-headquartered banks HSBC Holdings PLC, Standard Chartered PLC and Barclays PLC had the lowest loan-to-deposit ratios. The average ratio among Europe's 25 largest banks fell to 98.1% from 99.0% in the third quarter of 2021.