Banks hoarding cash ahead of the European Central Bank (ECB)’s new “stress tests” are holding back vital funds from euro zone businesses, according to consultancy EY.
EY now predicts that lending in the region will rise by only 0.5 percent in 2014, down from an earlier estimate of 1.6 percent. It attributed the softening outlook to banks’ caution ahead of the ECB asset quality review, which will test the ability of 128 major financial institutions to withstand economic stress.
EY warned that slowing growth in lending could hamper the 18-country group’s ability to recover from the recent financial crisis.
“Given how dependent consumer spending and SME (small and medium-size enterprises) financing are on bank lending in the euro zone, the AQR (asset quality review) could have a material economic impact,” said EY’s head of financial services, Andy Baldwin, in a report out on Monday.