Trends in Consumer Finance in the Eurozone

GDS Modellica
Lending plays a key role in the economy. Bank lending enables the flow of capital necessary for business growth, investment and consumption. They also drive job creation and stimulate economic activity in general. This is why the availability and terms of loans have a direct impact on the economic dynamics of each country or region.

This is an issue we never tire of referring to, as we can continually link to specific indicators in this area. One of the most relevant ones recently published is the banking forecast of the renowned consulting firm EY, which belongs to the group of the so-called Big Four. These indicators provide an up-to-date view of the economic and credit situation in the euro area. Analysing this data not only gives us the opportunity to better understand how lending and credit demand impact the overall economy, but is also a tool to help us assess the challenges and opportunities facing the banking sector in a changing environment.

Incidence of non-performing loans in Spain

EY’s forecast for lending activity in the Eurozone projects moderate growth in bank lending in the coming years. According to the report, an increase of 2.1% is expected in 2023 and 1.7% in 2024. However, as expected, there are significant differences between eurozone countries.

In the case of the German economy, loan growth is expected to slow down, mainly due to low GDP growth and the impact of rising interest rates on the housing market. On the other hand, Spanish banks are expected to experience a contraction in lending, with a decline of 1.2% in 2023, weighed down by a weak start to the year, and other domestic economic factors.

The forecast also highlights that there will be an increase in delinquency rates in the eurozone, which is considered “slight” but will have a particular impact on the Spanish and Italian markets, due to the high volume of variable rate mortgages in these countries. These trends reflect the challenges facing banks in the current economic environment of high interest rates and persistent inflation.
Similarities and differences with the ECB’s BLS

If we compare these indicators with the readings we took months ago from the European Central Bank’s (ECB) Bank Lending Survey (BLS), we can identify similarities and differences in the findings. For example, both reports agree on the tightening of lending activity in the euro area. In terms of mortgage lending, both the EY forecast and the ECB survey point to a tightening of mortgage lending conditions in the euro area. Both reports also agree that this tightening has been more pronounced than in consumer lending, due to perceptions and low risk tolerance.

However, there are some differences in the details. While the previous article highlights the slowdown in loan hardening between the fourth quarter of 2022 and the first quarter of 2023, the consultant’s forecast does not provide specific data on this aspect, and in any case points to activity potentially continuing at lower volumes of activity than at present. In any case, both reports offer a valuable perspective, and it is beneficial and necessary to consider different sources in order to have a complete understanding of lending activity in Europe.

The current situation of credit tightening and rising non-performing loans presents opportunities for companies such as GDS Modellica, which specialises in banking decision technology. These companies can offer innovative solutions to help financial institutions mitigate risk, detect fraud and optimise loan origination and collection processes.

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Advanced technology, led by data analytics, predictive modelling and task automation, can improve efficiency and accuracy in these key areas. By providing effective tools to make informed decisions, these companies can support the banking industry in its quest for stability and sustainable growth, regardless of the economic and credit challenges ahead.

In conclusion, the forecast we have reviewed on this occasion highlights a picture of hesitant growth in bank lending in the Eurozone, amidst challenges related to high interest rates and inflation. Although facing challenges, the banking industry can count on the support of corporate.

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