Since the beginning of this year, we have seen banks and financial institutions lending more to businesses and individuals.
However, in their eagerness to meet annual goals, could these lenders be paving the way for a new financial crisis?
A Plenitude of Loans
Week after week, statistics show that bankers are generous with companies and households. In Belgium, we noticed a climb in loans granted by nearly 5% for businesses and SMEs, while it rises to 6% for individuals.
This “generosity” from financial institutions can be explained by the significant drop in mortgage loan applications at the end of 2017. With rising real estate prices, Belgians were less inclined to invest in property and thus sought less help from banks. Following this decline in loan applications, financial institutions relaxed their acceptance conditions and lowered their interest rates to attract more prospective clients.
Good News for Industry?
Thanks to this surge in loans, Belgium has seen an increase in the number of new businesses. Banks, notably, have been particularly supportive of the most productive companies that actively contribute to the country’s economic growth.
Additionally, financial institutions face growing competition with the rise of credit alternatives: crowdfunding, leasing, factoring, private investments, etc.
Beware of Overheating
As you may have gathered, it is a favorable time for loan applications. Yet, with a substantial increase, one must wonder how long the favorable conditions for loan applicants will last.
Indeed, a rise in interest rates is likely. Furthermore, should we fear the over-indebtedness of some actors? If debt repayment becomes challenging for most businesses and households involved, we may be heading towards a situation similar to that of 2007-2010.
