Since the beginning of the turmoil on the financial markets, the risk of a so-called credit crunch has increased significantly. In a credit crunch, banks’ lending to individuals and entrepreneurs comes to a halt. According to BNR’s internal economist, Han de Jong, there is “no reason to panic yet, but central banks need to stay alert”.
At the moment, according to De Jong, there is no question of such a credit crunch. But it is clear that the banks are more cautious. “Banks set conditions for the loans they provide and these rules become stricter from time to time,” explains De Jong.
‘The European Central Bank conducts a quarterly survey of banks on prevailing credit conditions. In the latest survey a few weeks ago, banks said conditions are already tightening.’
This indicates that banks are increasingly evaluating risks. “This is the perception of bankers,” says De Jong. ‘This makes lending much more difficult. And if it stops, the business will also collapse.’
recession
According to De Jong, bankers are mainly anticipating the approaching recession. “We talked about it a lot in the second half of last year,” he says. ‘In a recession, companies do less well and some fail. Banks often anticipate this and tighten credit conditions.’
“If the loan goes down, the business will collapse too.” ‘
As a result, companies are less likely to turn to banks for working capital or investment money. “So the activities have to be reduced to a lower level or even have to be stopped,” he explains. “But this problem also affects families. If they no longer receive credit from banks for the purchase of a house, the real estate market will also end”.
Not new
However, a credit crunch is not new. Over the past two decades, there have been two periods in which credit conditions have been adjusted more sharply than at present. The ECB anticipated this by lowering interest rates, says De Jong. ‘But that’s not the case now due to high inflation. Central banks are raising interest rates. This increases the risk of a credit crunch,’ thinks De Jong.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
