Chart of the Week
The ECB euro area bank lending survey shows that banks are tightening their credit standards for both corporates and households. While household demand for loans has fallen sharply, corporate demand has remained relatively stable.
The factors driving corporate demand have changed. While borrowing related to fixed investment and to mergers and acquisitions (M&A) rose until the spring of 2022, the reverse is now true. In parallel, financing needs related to working capital requirements (WCR) have risen significantly in the past year. However, for the time being and unlike in 2020, firms do not appear to be restructuring debt.
OUR ANALYSIS
Both banks and companies alike are becoming more cautious despite net demand for loans remaining at a reasonable level. While working capital financing usually moves in the same direction as the pro-cyclical components of fixed investment and M&A, WCR financing is currently rising significantly while the other factors are falling. The ECB survey also reveals that short-term loans (less than 12 months) are accounting for an increasing share of overall loan demand. This is a signal that inflated production costs are forcing firms to devote more funds to maintaining their operations.
The opinion expressed above is dated October 28th, 2022 and is subject to change.
See also: https://latribune.lazardfreresgestion.fr/en/small-caps-a-source-of-opportunity/
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