Credit quality is deteriorating rapidly. In the second quarter of this year the seasonally adjusted ratio of new bad debts to total loans rose to just under 2 per cent, from 1.6 per cent in the first quarter. The increase was especially large for loans to firms (from 2.1 to 2.6 per cent).
For the banks, the increase in their own credit risk makes their re-financing harder. In short, unsecured financing is hampered by the perception of increased bank riskiness while secured financing is undermined by the erosion of collateral. This can in turn become a major obstacle to granting loans to the real economy.