Credit risk and bank lending conditions

Francesca Barbiero and Maria Dimou

Economic Bulletin Boxes, 2024, vol. 4

Abstract: This box investigates the factors underlying the growing, but still moderate, deterioration in bank credit quality against the backdrop of weak economic activity, rising interest rates and increases in the number of corporate bankruptcies. First, drawing on granular credit register data, we show that banks have actively rebalanced their loan portfolios towards safer assets, potentially curbing a build-up of credit risk on their balance sheets. Second, we explore the possibility that banks exercised greater caution in credit allocation as a result of regulatory considerations, and we assess the impact of bank balance sheet strength and resilience before the start of the recent monetary policy tightening cycle on their credit allocation strategies. Our findings suggest that regulatory pressures are relevant in the reallocation of credit from riskier to safer borrowers, while balance sheet strength and resilience prior to the tightening cycle did not significantly influence credit allocation patterns. JEL Classification: E51, E52, G21, G35

Keywords: credit risk; lending conditions; monetary policy (search for similar items in EconPapers)
Date: 2024-06
Note: 2609469
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