How Inflation and War Affect Loan Approvals

By Leonidas Stergiou

The overall picture and averages lead to contradictory messages regarding the disbursement of loans in the first quarter. In 2022, the first two months start weakly, mainly in January. Then comes March, which had an increase in disbursements, to a point that balanced the first two months.

This is the picture presented by the loan disbursements of the four systemic banks in the first quarter, which raises questions about how the big increase in March coincided with the start of the war (uncertainty) and with rising inflation. The answer is given if we look at each category differently. Also, some banks have differences in the same categories, due to their clientele.

Amounts and trends per category

The conclusions from the communication of Capital.gr with the four systemic banks for the first quarter can be summarized as follows:

First, almost half of the third-quarter mortgages were granted in March. A smaller part, but which helped in the amount of disbursements, was the “Save” programs. For example, in March, 122 million euros of housing loans were disbursed, while in the third quarter 255 million. to EUR 263 million.

Second, there was a slowdown in consumer loans from car purchases, which account for more than half of consumer credit loans. The slowdown in consumer car loans is mainly due to shortages, even of used ones. On the other hand, the smaller part of consumer loans related to meeting needs showed an increase, especially in February. In any case, the amounts are very small, compared to other times. For example, of the 85 million euro disbursements in March, of the total consumer goods, 60 million euros were for cars. Small consumer loans also rose as Alpha Bank entered the fast loan market. In addition, the increase in consumer loans is due to the increased needs of households due to high electricity tariffs and tax liabilities, as shown by the movement from small consumer goods. However, rejections remain high, at around 50%.

Third, more than half of small business loans were also disbursed in March, reaching 186m euros, up from 320m euros in the third quarter. The slowdown occurred mainly in construction-related businesses due to inflation and the uncertainty of the war. The same reasons affected other industries, but not in the same way. For example, in trade there was an increase in loans to buy stocks at higher prices.

Demand from households

The picture is confirmed by the Bank of Greece’s research on financing conditions in the first quarter of 2022 and on banks’ estimates in the second quarter published yesterday. According to the research, the banks are going to significantly relax the credit criteria in mortgage lending in the second quarter of 2022, after a small increase in rejections observed in the first quarter of the year. In consumer, the criteria will remain strict. Also, the demand for mortgages slowed down significantly in the first quarter, almost to 1/3 of the levels of the fourth quarter of 2021. Banks believe that the demand for mortgages will move at the same levels or with slightly upward trends in the second quarter. Semester. Demand for mortgages slowed in the third quarter as expectations for the real estate market fell along with consumer confidence. Demand for consumer loans fell in the first quarter, mainly due to the car market, which is set to strengthen significantly in the second quarter. In general, in consumer loans, demand was restrained by the sharp decline in household spending on durable goods, such as cars, furniture, etc. At lower levels than in the fourth quarter of 2021, but higher than in the first quarter of the year, it is expected to move consumer demand in the second quarter of 2022.

Demand from businesses

Overall, there was a slight decrease in demand for business loans in the first quarter and banks estimate that the same trend will remain throughout the first half. Exceptions were loans to small and medium-sized enterprises and short-term loans. Demand for small and medium-sized loans increased in the third quarter of 2021 and this is expected to continue in the second quarter of 2022. On the contrary, the demand from large companies showed a slight slowdown in the previous quarter, which is expected to normalize by the end of the semester. In long-term loans, however, demand is expected to decline. The main reason for the increased demand from companies was the reduction of their stocks and liquidity. In large companies there was also a small demand for fixed investments. In terms of interest rates, competition between banks contributed by 25% to lower interest rates for small and medium-sized enterprises.

Read also: