Credit expansion is at risk

Businesses and households are measuring the effects of the rise in interest rates, but also the increased uncertainty created by the financial turmoil and the domestic political climate. This is holding back demand for loans, despite the high liquidity that exists in the economy through banks.

The rise in the cost of money is putting a brake on borrowing initiatives, not only by households, but especially by businesses, which are averse to exposure to borrowing by making large repayments or even prepayments of existing debts.

“Anyone who can choose prefers not to have exposure to borrowing,” corporate banking executives note, and according to data from the banks, loan repayments have risen to record levels in the first quarter of the year, even above those observed in 2022 that approached 25 billion euros out of a total of €33 billion of new disbursements.

“This year got off to a difficult start and I would not be surprised even if we ended up with a credit contraction,” one bank executive notes, arguing that despite the fact no major investment projects have been canceled at the moment, “some investment projects will not be affordable as money becomes more expensive.”

“The market in the first quarter looks extremely shallow,” another executive remarks, essentially foreseeing that the restrictive monetary policy is starting to bite in the real economy.

According to Kathimerini data, the high repayments offset the new financing and according to competent bank executives, they create concerns about the achievement of the goals for substantial credit expansion that the banks have set for 2023, amid an unstable political context ahead of the elections.

The causes are attributed to the rise in interest rates, the reduction of prices of raw materials year-on-year in the first quarter, the high liquidity that exists in key sectors of the economy, such as energy and especially shipping, the maturing of loans issued during the pandemic, and the international financial turmoil.