The market turbulence after the Brexit vote was feared to have an adverse effect on euro area’s bank lending. But the July data does not underpin the strongest fears as credit growth remained positive and downward trend in interest rates continued.
Even if both the factors underpin the monetary policy of ECB, they are losing momentum and support the view of a slightly slower economic growth in the second half of 2016, noted Nordea Bank in a research report. The retail interest rates continued their downtrend in July. From the monetary policy transmission view point, this is positive news for ECB.
“It seems that the monetary policy easing is still feeding into lower rates and the much-speculated negative side effects of the negative ECB deposit rate are not visible”, said Nordea Bank.
But the fall in interest rates is decelerating and therefore the stimulus from lower lending rates to growth is becoming smaller. Moreover, slight concern is that deposit rates fell again even less than lending rates. The narrowing margin is expected to weaken the outlook of the banking sector.
Subdued credit growth continued in July. Even if the worst fears did not materialise, the credit impulse was diminishing further. The growth in credit in both non-financial corporate sector and household continues to be solid in France. However, developments in Germany are easing.
The most active post-Brexit discussion focused on Italy’s banking sector, according to Nordea Bank. But the credit and deposit developments in Italy’s banking sector at the aggregate level did not appear to be impacted much. Non-financial corporate and household lending continued to be basically at the level of earlier months and the lending rates for businesses continued to fall at a more rapid pace than on average in the euro area. However, bank lending is unable to provide any stimulus to Italy’s economic growth.
