Weak Eurozone Bank Lending Suggests Uncertainty Is Hampering Monetary Easing

By Bert Colijn of Think.ING

Monday, June 30, 2025 7:10 AM EDT

Person Holding Blue and Clear Ballpoint Pen

Image Source: Pexels

Monetary easing is filtering through the lending channel more slowly, with borrowing growth among businesses and households showing signs of levelling off. Uncertainty in the economy seems to have reduced the impact of ECB rate cuts. If that persists, it adds a dovish tone to the September debate about a possible next cut.

While the European Central Bank reports year-on-year growth in bank lending in its press release, we like to compare slightly shorter time frames to better capture developments in recent months. We notice some weakening effects of monetary transmission in the numbers.

In May, bank lending to non-financial corporates declined compared to April - the first decline since July last year. While volatile, the three-month average growth rate has been dropping steadily, indicating that bank lending to corporates is not seeing many positive effects from the ECB moving its interest rates to neutral at this point.

Meanwhile, there is a break from the trend with bank lending growth to households, which accelerated over the course of 2024 but seems to have plateaued at just over 0.2% month-on-month this year. May saw a small tick down in the growth pace, which is now at the weakest level since November. Overall, we're seeing a levelling off effect, which suggests that monetary easing conditions are not translating as forcefully through the lending channel anymore.

Uncertainty has prompted businesses to become more reluctant to borrow for investment purposes, as the bank lending survey from April showed. Since then, uncertainty has only increased, which makes a downturn for borrowing in May understandable. The big question is how long this uncertainty will continue to suppress borrowing appetite among businesses, as this suppresses investment in the eurozone economy.

The ECB is widely expected to pause its rate cuts in July. This is not necessarily to see how its policies are playing out, but mainly to see how the economic environment is shaping up in times of huge uncertainty. If economic uncertainty has become so large that it starts to weaken lending and investment substantially, that could provide another dovish argument for a further rate cut in September.

More By This Author:

FX Daily: Short Week, Big Risks
Are You Thinking What We’re Thinking On Fed Rate Cuts?
Think Ahead: US Jobs In Spotlight In Holiday-Shortened Week

Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. ING forms part of ING Group (being for this purpose ING Group NV and its subsidiary and affiliated companies). The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.

The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.

Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved. ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam). In the United Kingdom this information is approved and/or communicated by ING Bank N.V., London Branch. ING Bank N.V., London Branch is deemed authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.. ING Bank N.V., London branch is registered in England (Registration number BR000341) at 8-10 Moorgate, London EC2 6DA. For US Investors: Any person wishing to discuss this report or effect transactions in any security discussed herein should contact ING Financial Markets LLC, which is a member of the NYSE, FINRA and SIPC and part of ING, and which has accepted responsibility for the distribution of this report in the United States under applicable requirements.

less

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.