Lending and deposits

The data has been compiled from publicly available information released by the European Central Bank, European Commission, Eurostat, the European Banking Authority, International Monetary Fund, national competent authorities and members of the European Banking Federation. Unless otherwise noted, all graphs and tables have been produced to illustrate the figures mentioned in the relevant chapters.

General trends

The core banking activities of raising deposits from and providing credit to customers are crucial to Europe’s banks. Despite deleveraging by European consumers and businesses, bank deposits and loans grew in 2016.


Deposits accounted for 51.3% of monetary financial institution (MFI) liabilities in the EU by the end of 2016. Deposit liabilities in the EU fell by 0.7% to €22.1 trillion. Some of the decline may be attributable to the impact of exchange rate fluctuations on non-euro area values. For example, the euro significantly increased in value against the UK pound sterling during 2016.

EU deposits have averaged €21-22 trillion since 2008.

Deposits from other MFIs peaked at €8.1 trillion in 2007 and fell to €6.4 trillion by the end of 2016. However, their fall has been more than offset by growth in deposits from non-MFIs, excluding central government.

Total deposits from non-MFIs, excluding central governments, grew by 1.2% in 2016 to €15.9 trillion in the EU at the end of 2015, with €11.8 trillion in deposits in the euro area. This compares with €11 trillion and €7.9 trillion, respectively, in 2006.

The growth has been driven by an increase in deposits from households (including non-profit institutions serving households), which rose by 1.7% year-on-year to €8.9 trillion and non-financial corporations (NFCs), up by 3.7% to €3.0 trillion.

Within household and NFC deposits, there has been a clear shift to shorter-term deposits. Overnight deposits accounted for 53.1% of household and 76.8% of NFC deposits in the EU at the end of 2016, up from 41.5% and 64.0%, respectively, in 2011.


The total value of loans outstanding from EU MFIs increased by 0.3% in 2016 to €23.6 trillion, the highest level since 2012. The increase derived from growth in loans to other MFIs and non-MFIs in the euro area as well as an increase in loans to non-MFIs in other EU Member States. Some of the decline in loans in other EU Member States is likely attributable to the euro vis-à-vis UK pound sterling.

Some 77.2% of on-balance sheet household lending in the EU supported house finance in 2016.

Loans to EU households fell by 0.9% in 2016 to €7.6 trillion, reflecting mainly the drop in non-euro area values.

Loans to households in the euro area grew for the second successive year, adding some €200 billion on loans outstanding since 2014.

Non-financial corporation (NFC) loans outstanding fell by 0.5% in 2016 to €5.2 trillion.

The concentration of NFC loans in the euro area has changed slightly since 2012. Real estate activities, professional, scientific and technical activities and administrative and support service activities accounted for 34% of loans outstanding at the end of 2016, up by 32% in 2012. Manufacturing and the wholesale and retail trades also increased their shares. Construction fell from 13.3% of loans outstanding to 9.4%, likely a reflection of deleveraging in the sector.

Results from the ECB’s Bank Lending Survey in 2016 suggested a generally improving environment for small and medium-sized enterprises (SMEs) and large enterprises. Credit standards eased somewhat in most quarters from the start of 2014 for both segments.

Loan demand among SMEs has grown since Q4 2014, with the net weighted percentage reaching 27.9 in Q1 2016 before easing back.

These trends point to a healthy appetite for new NFC lending and an accommodative banking sector.

The Role of Banks: lending and payments

Banks act as facilitators between those who have money and those who need money, while also providing the systems for funds to flow between payers and payees.

The primary role of banks is to take in money from those with cash in hand and to lend money to borrowers. Banks then receive loan repayments which can be used in new lending to other borrowers.

The traditional view of this process has been that banks “create” money by providing some of the money on deposit in the form of loans to borrowers, which returns to the banking system as deposits. This money can then be lent again and again, resulting in a multiplier effect. More recently, money creation has focused on how lending creates bank deposits i.e. whenever a bank provides a loan to a customer, a deposit is created.

Banks cannot lend freely without limits. They have to be able to lend profitably in a competitive market, while also managing liquidity risks (i.e. that they have sufficient liquid assets to repay depositors or investors when required) and credit risks (that some borrowers may not repay their loans). These lending activities are regulated and safeguarded by global/international standards and EU regulations.

Just as money can be created, it can also be destroyed. For example, in the case of a mortgage being used to purchase a second hand property, the purchaser could use the proceeds from the sale to pay an existing mortgage, effectively bringing the amount of money created back to zero.

Banks are also key players in national and international payment systems. Some 112 billion cashless payments were made by customers of EU credit institutions in 2015. Almost half (53 billion) of those were card payments, while about a quarter were credit transfers (29 billion) or direct debits (24 billion).

The Single European Payments Area (SEPA) aims to harmonise and integrate payment markets across Europe, with one set of euro payment instruments: credit transfers, direct debits and payment card, common standards and practices and a harmonised legal basis. SEPA covers more than 520 million people in the 28 EU Member States and six non-EU countries (Iceland, Liechtenstein, Monaco, Norway, San Marino and Switzerland).

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