Gradually improving euro area lending supports TLTRO demand

The weakness in EA monetary aggregates and bank lending dynamics have been a drag for the EA recovery, largely reflecting the deleveraging and balance sheet repair in the private sector - a process that it is not complete. However, in recent months both M3 and, to a lesser extent, bank lending dynamics have witnessed some progress. The improvement is consistent with an acceleration economic activity since end 2014. Domestic demand has been the main driver of growth, especially private consumption, which shows in comparatively better lending dynamics for households than for non financial corporates thus far (NFCs). 

However, in Q1 15, real investment demand grew by +0.8% q/q the strongest since Q2 13. These positive dynamics is expected to have continued in Q2 15, says Barclays. The most recent data (April 2015) on monetary aggregates and bank balance sheets show a surge in money growth and a moderate increase in the growth rate of loans to the private sector. 

Adjusted for sales and securitization, loan growth stood at 0.8% y/y while M3 increased by 5.3% y/y, notes Barclays. The growth of loans to the private sector had been in negative territory since the beginning of 2012. Lending to NFCs hardly rose (up EUR2bn) and its annual growth rate remained in negative territory at -0.1% y/y, slightly up though compared to March (-0.2% y/y). The continuation of weak lending dynamics to euro area NFCs is a reflection of corporate deleveraging and weak investment activity. 

In contrast, household lending growth rose by EUR13bn (1.3% y/y) as both mortgage and consumer credit provision picked up further in April, signalling that consumer demand remains the main GDP growth pillar at this juncture in the euro area. Overall, the improving aggregate demand and lending conditions should be reflected in relatively strong TLTRO demand next week, added Barclays.