Energy price shock lowers bank credit for intensive firms
A new European Central Bank working paper examines the impact of the 2022 energy price shock on bank lending using Danish firm-level data. The study finds that bank credit to high-energy-intensive firms declined by 8.75 percentage points following the shock.
Credit growth diverges after the shock
A new ECB working paper investigates how the energy price surge following Russia's invasion of Ukraine affected bank lending, utilizing a unique matched dataset of Danish manufacturing firms.
By comparing firms with varying energy intensities within the same narrow industries and banks, the authors isolate the causal effect of the shock.
In the second quarter of 2022, bank credit growth for high-energy-intensity firms fell by 8.75 percentage points relative to low-energy-intensity firms.
This contraction persisted for several quarters, representing a tightening magnitude comparable to a half-point policy rate increase.
Three-quarters of the decline stemmed from reduced utilization of existing credit lines, primarily among safer firms.
Demand caution meets supply tightening
The study decomposes the mechanisms driving the credit contraction into demand and supply channels.
The drop in credit growth was largely driven by precautionary reductions in borrowing by safer, more liquid firms seeking to build buffers against uncertainty, rather than outright limits imposed by banks.
However, supply-side tightening also materialized in new loans.
High-energy-intensive borrowers faced loan maturities shortened significantly and annualized credit spreads that rose by about 1.6 percentage points, reflecting a distinct energy risk premium charged by cautious lenders.
Precise microdata, sobering implications
This rigorous study brilliantly disentangles credit demand from supply during cost shocks.
However, applying Danish manufacturing findings to larger euro area economies remains challenging.
Ultimately, policymakers must watch how energy vulnerabilities constrain corporate liquidity even when aggregate credit appears stable.