(July 21): Eurozone banks tightened corporate credit standards further as they see higher risks due to geopolitical events including the Iran war.

Lenders also reported more rigid standards for mortgages, consumer credit and other lending to households, the European Central Bank said Tuesday in its second-quarter Bank Lending Survey.

“Perceived risks to the economic outlook and banks’ lower risk tolerance remained the main factors contributing to the tightening, as banks remain highly attentive to risks related to geopolitical and energy developments,” it said.

The results arrive just ahead of the ECB’s two-day monetary-policy meeting, with officials expected to keep borrowing costs on hold after a quarter-point hike in June. Economists and investors widely anticipate another increase at the September gathering.

Policymakers are still assessing the fallout from the Middle East conflict and its recent renewed escalation. Energy prices have jumped on the worsening hostilities and Brent crude oil rose to above US$90 a barrel for the first time in more than five weeks on Monday.

Bank lending plays a key role in driving activity, especially for corporate investment, and also acts as an early indicator of how rate changes are filtering through the broader economy.

Tuesday’s report also showed a slight increase in companies’ appetite for credit, driven by “higher demand for inventories and working capital, demand for fixed investment from large firms and other financing needs related to debt refinancing and restructuring".

The ECB highlighted that demand for housing loans “declined markedly".

“Deteriorating consumer confidence and changes in interest rates were the main drag on housing loan demand, with worsening housing market prospects also weighing negatively,” the ECB said.

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