Euro area companies felt the tightening cycle in their loan pricing in the third quarter, the European Central Bank’s Survey on the Access to Finance of Enterprises showed on Monday. A net 46 percent of firms reported higher bank loan interest rates, up from a net 42 percent in the second quarter. The increase was reported more often by large firms, at a net 55 percent, up from 41 percent, than by small and medium sized enterprises, at a net 38 percent. Firms also faced higher non-interest borrowing costs and stricter collateral requirements, reported by a net 14 percent, up from 10 percent.
Availability fell faster than need. A net 5 percent of firms reported a decline in bank loan availability, after a net 1 percent decline in the previous quarter, while a net 2 percent reported decreasing needs for bank loans, reversing a net 2 percent increase in the second quarter. The financing gap indicator stayed positive for a net 2 percent of firms, and the share reporting obstacles to obtaining a bank loan rose to 7 percent from 5 percent, still low in absolute terms. Only 4 percent of firms were classed as financially vulnerable, unchanged from the previous quarter.
The wider picture is of a corporate sector absorbing higher rates rather than breaking under them. A net 21 percent of firms reported a decline in profits, up from 16 percent, while a net 8 percent increased fixed investment, up from 6 percent, and a net 27 percent expect higher turnover next quarter. Among firms that responded in both rounds, the measure the ECB prefers given this round’s sample change, median one-year inflation expectations held at 3.0 percent, with the three-year median at 3.2 percent and the five-year at 3.1 percent, and 65 percent of firms saw upside risks to their five-year inflation outlook.
For Thursday’s Governing Council meeting, where a hold at a 2.50 percent deposit rate is widely expected, the survey cuts both ways and that is its value. It confirms transmission: policy and market tightening is reaching the bank lending channel that euro area firms actually use. It also shows the cost arriving unevenly, in profits and in availability for smaller borrowers, three days before the ECB has to decide whether the bond market has already done enough of its work for it.