The third quarter results show banks continuing to tighten their credit standards for loans or credit lines to both enterprises and households. For enterprises, the pace of net tightening (12 percent after 14 percent) was slightly less marked than in the second quarter and a similar pattern was seen in consumer credit (16 percent after 18 percent). However, tightening was more marked for house purchase (11 percent after 8 percent) and in all cases more than banks expected last quarter.

For the fourth quarter, the region's banks expect a further, albeit more moderate, net tightening of credit standards on loans to firms and broadly unchanged credit standards on loans to households for house purchase. For consumer credit, a significant net tightening is anticipated.

The survey also found another sizeable contraction in loan demand. However, for enterprises (minus 36 percent after minus 42 percent) the fall was less than the second quarter's record drop and house purchase (minus 45 percent after minus 47 percent) similarly saw a slightly smaller decline. For consumer credit demand (minus 12 percent) there was no change.

In sum, the latest results are consistent with what has been a sharp slowdown in bank lending in 2023 and can only add to downside pressure on Eurozone economic activity. However, inasmuch as weaker demand is probably necessary to ensure inflation continues to move back towards target, this will not trouble the ECB.

The European Central Bank's quarterly lending survey of around one hundred and forty banks aims to enhance the Eurosystem's knowledge of financing conditions in the Eurozone and so help the central bank to assess monetary and economic developments as an input into monetary policy decisions. The headline number refers to the net percentage of banks that have tightened their credit standards on lending to enterprises. It is designed to complement existing statistics on retail bank interest rates and credit with information on supply and demand conditions in the euro area credit markets and the lending policies of euro area banks. The survey addresses issues such as credit standards for approving loans as well as credit terms and conditions applied to enterprises and households. It also asks for an assessment of the conditions affecting credit demand.

Particularly in the wake of the Great Recession and the Covid-19 crisis, changes in financial market conditions can have a major say in central bank policy, and hence, the level of asset prices. The main focus is the net percentage of reporting banks indicating tightening credit standards or positive loan demand with regards to enterprises, house purchase and consumer credit. An unwanted tightening of standards or undesired fall in lending could prompt a softer monetary stance from the ECB, potentially entailing lower official short-term interest rates and possible efforts to reduce the cost of longer-term loans.