Bank lending in Southern Europe will remain below 2011 levels for at least the next four years, worsening the region’s recession, Ernst & Young LLP said.
Lending to consumers will drop by as much as 15 percent in Spain this year, according to the Ernst & Young Financial Services Forecast, published today. Total lending in the euro area will decrease by 262 billion euros ($340 billion), or 2 percent, in 2012 as companies shrink their assets and limit lending beyond their home markets, the accounting firm said.
Prime Minister Mariano Rajoy has given up on Spain resuming growth next year from its second recession since 2009. At the same time, European regulators are pressing banks to bolster capital and restrict lending outside their home markets, according to the firm.
“In response to market conditions and regulation, banks are beginning to retreat behind national borders, which is fragmenting the euro zone financial system,” Andy Baldwin, head of financial services for Europe, Middle East, India and Africa said in the report. “The retrenchment of the banks is resulting in lending constraints that will exacerbate recessions in the peripheral economies.”
Deleveraging by banks will contribute to an 8.8 percent decline in Spanish lending this year, the report said. Deposits will drop 6.1 percent before outflows are gradually reversed in 2013, it said.
In Italy, banking assets may fall by 144 billion euros this year as corporate loans decline 5.1 percent and consumer credit 3.3 percent. The non-performing loans ratio may peak in 2013 at 9.2 percent, the highest level since 1999, the report said.
In France, corporate loans will expand by 0.6 percent this year as consumer credit contracts by 5.2 percent. In Germany, loans to businesses and households will rise 1.6 percent this year, according to the report.
Bond sales by companies will this year surpass bank lending in Europe, an unprecedented move in the region, according to the report.
“This indicates, perhaps for the first time, that the banking system is being dis-intermediated from the financial system,” Baldwin said. “This new trend will help larger corporates, who have access to the bond markets. It will not assist their small-and medium-sized counterparts, who are experiencing difficulties in arranging loans and facilities from a number of banks.”