Banks tighten conditions for consumer loans

BarcelonaDuring the third quarter of this year, banks tightened access conditions for consumer loans, which are those intended to finance the purchase of a car, household appliances, travel, or renovations. According to the bank lending survey conducted by the Bank of Spain, these restrictions are linked to the increase in interest rates, which the European Central Bank (ECB) raised from 2.25% to 2.50% in September; however, they have not yet affected mortgages. The institutions, some of which decided to reduce the pace of granting loans for home purchases, anticipate that conditions will continue to tighten until the end of the year.

The trend between July and September "was more favorable than the institutions expected three months ago for loans to households for home purchases." In contrast, the percentage of institutions that saw an increase in rejected applications "increased slightly for consumer loans and other purposes," according to this report.

In any case, the general conditions for new loans "tightened for both companies and households." And this likely affected all types of credit through an increase in interest rates. During the third quarter, banks passed on the increase in their financing costs. According to data from the Bank of Spain, the average interest rate on new consumer loans stood at 7.16% in August, compared to 6.96% the previous month. And for loans for home purchases, it was 3.04%, compared to 2.89% the previous month.

Less demand and more restrictions

Regarding credit demand, it decreased across all segments during the third quarter. "The fall was moderate in financing to companies and in loans to households for consumption and other purposes, while for those intended for families for the acquisition of housing, the decline was more intense". In the business segment, the decrease was mainly on the part of SMEs.

The surveyed entities expect to "moderately" tighten conditions for accessing household loans during the fourth quarter, while financing for companies "would remain unchanged". All financial entities foresee further falls in credit demand across all segments throughout the fourth quarter. According to the entities, the expansion of artificial intelligence would not have, for the moment, a significant impact either on credit demand or on the banks' credit policy.