European banking sector and bank lending amid COVID-19

Abstract

The unprecedented economic impact of the COVID-19 pandemic might also have a negative impact on banks. Banks in the euro area play an important role as the main source of external financing for the private sector. Hence, the negative impact of COVID-19 could translate into both deeper economic contraction and hinder banks’ ability to finance the post-pandemic economic recovery. Therefore, this study provides a review of the bank lending and banking sector situation in the first year of the pandemic. It presents changes in bank lending and conducts a descriptive analysis on the following main potential determinants of bank lending growth during the pandemic: bank lending supply and demand, public sector lending guarantee schemes and monetary policy easing. It also describes how the overall situation of the banking sector was influenced and the perspectives for the medium term. The descriptive analysis is complemented with a simple econometric analysis on the determinants of bank lending across the euro area countries.