European banks and companies responded with greater caution to the increased uncertainty regarding the economic impact of the health crisis in the third quarter. This is according to the latest Bank Lending Survey from the European Central Bank, which also notes a decrease in the demand for financing. Overcoming the pandemic is a necessary condition for economic recovery. However, it is also essential that entities guarantee the best possible financing and that companies and authorities lay the foundations for sustained growth despite the current uncertainty. <\/p>\n
According to the responses of more than 143 banks in the Eurozone to the survey conducted between September 21 and October 6, the sector perceives an increase in risks due to the deterioration in outlook, both for the general economic situation and for the solvency of specific borrowers and sectors, and, to a lesser extent, due to the value of the collateral requested. The economic outlook for the near future in the Eurozone is no longer as promising as previously thought before the new phase of deterioration observed in the evolution of the pandemic. <\/p>\n
The decline in demand for new financing from companies is due to several factors. The decrease in applications was primarily a result of lower investments in fixed capital and a reduction in liquidity needs to finance inventories and working capital; the latter is consistent with the recovery in turnover for most companies following the collapse observed in the second quarter linked to the state of alarm. The decline in demand is also explained, though to a lesser extent, by lower financing needs for mergers, acquisitions, and corporate restructuring operations. <\/p>\n
The survey results in Spain are not very different from those of the Eurozone, especially considering the higher credit financing received by Spanish companies since the start of the crisis: one point above the European average, reaching an annual increase of 7.5%. Spanish banks were clear from the outset that they had to commit all their resources to preserve the economy, support their clients, and collaborate with authorities on support measures. They did so effectively and transparently, prioritizing responsibility in credit approval as is their duty and as requested by the authorities. It was fundamental at that time, and remains so now, to preserve the financial stability essential for the future economic normality. Regarding companies, with the high level of financing received at the start of the pandemic, they sought to guarantee liquidity during a period of uncertain duration regarding the economic shock. <\/p>\n
The exceptional monetary expansion measures adopted by the European Central Bank (ECB) have been fundamental in strengthening market stability and improving access to wholesale financing. However, banks have been the main financing route for European companies regardless of their size, effectively passing on the improved financing conditions offered by the ECB to the real economy. Central banks need certainty about the future to design, communicate, and execute their monetary strategy. Similarly, their decisions are decisive in increasing certainty as they directly influence the expectations of economic agents. <\/p>\n
The uncertainty stemming from the health crisis is undoubtedly depressing business expectations, while the ECB focuses a significant part of its efforts on reducing market volatility, which is clearly necessary. Preserving the stability of banks is also on the authorities’ list of priorities, not for the sake of the sector, but for the sake of society as a whole, which it serves. Financial institutions must maintain their strength, profitability, and solvency to fulfill their mission of helping families and businesses. <\/p>\n
In pursuit of this objective, banks are redoubling their efforts to maintain the financing the economy requires, according to objective and responsible criteria, as they have always done, so that the economic recovery takes root on the basis of solvent companies capable of maintaining their activity despite the difficulties of the current complex context. The necessary financing must reach these companies, and the mission of the banks is to identify them to provide full support so they can move forward, even if the path they must travel is the most uncertain in our history. <\/p>\n