–Demand For Business Loans In 4Q Seen Mostly Unchanged, As In 3Q

PARIS (MNI) – Portuguese banks saw a decline in demand for
household loans in the third quarter, and they expect that trend to
continue in 4Q as austerity measures imposed by the country’s highly
indebted government continue to dampen consumer confidence and domestic
demand, the Bank of Portugal reported Wednesday.

At the same time, demand for business loans held steady in the
third quarter and is expected to remain broadly stable in the last three
months of the year as well, the central bank said.

According to the survey, banks generally reported very little
change in the criteria they applied to household or business loans in
the third quarter of the year, and they expect that to remain the case
in the fourth quarter, too.

On the household front, a majority of banks expect a drop in demand
for home purchase loans and, to a lesser extent, for consumer loans in
the last three months of the year. The same dynamics prevailed in the
third quarter, when sagging demand for home purchases led the retreat in
overall borrowing by households.

The main factors behind the continuing drop in household loan
requests are deteriorating consumer confidence, a darkening outlook for
the housing market, and a decline in spending on durable consumer goods,
the Bank of Portugal survey showed.

In the case of business credit demand, countervailing forces
essentially cancelled each other out in the third quarter, the central
bank said. The main factor militating for a drop in demand was the
reduced need for business investment. On the other hand, an increased
need to finance existing operations and to restructure company debt
provided some support to loan demand.

Although they reported very little change in criteria applied to
loans in the third quarter, banks nonetheless identified some factors
that exerted a tightening influence in their credit standards. These
included the weakening economic outlook, an increase in banks’ financing
costs and the need to reduce the size of their balance sheets. Banks
noted a “slight worsening” of some conditions, including higher interest
rates – especially on “high risk” loans – and more restrictive
contractual terms on business loans, such as shortened maturities,
harsher covenants and stiffer collateral requirements.

—Paris bureau, +331-42-71-55-40; bwolfson@mni-news.com

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