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"Until the resolution of the euro zone crisis, a period of continued market instability, constrained credit as well as the resulting near standstill in Western Europe is expected to seriously affect the outlook for the E.B.R.D. region," the bank warned in a report on regional economic prospects, published in October.
Table 11 Distribution of credit constrained Credit rationed category Frequency Percentage Cumulative Unconstrained borrowers 56 28.1 28.1 Unconstrained non-borrowers 49 24.6 52.8 Quantity rationing 37 18.6 71.4 Risk rationing 57 28.6 100 Total 199 100 Source: Own Survey, 2014.
It acknowledges that it is difficult to be precise about the contribution of supply and demand to the reduction in loans but notes that "constrained credit supply" is one of the factors holding back economic recovery.
Unless the stimulus is accompanied by a successful twin effort to stem foreclosures and stabilize the banks, the downward pull of falling home prices and constrained credit will be too great to overcome.
For York pub owners Chris and Emma Watkins, the gloomy reports from business groups on constrained credit and official figures of falling lending are something they are all too familiar with.
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But banks, including politically powerful community lenders, have stoked fears that the new regulator could become an unwieldy monster and that its mandate to make products simpler could constrain credit.
On top of that, he adds, the inability to securitize will constrain credit more than if banks alone had cut back on lending.
All these developments may have constrained the credit supply of some institutions.
Another study carried out in Nigeria reports that female entrepreneurs are constrained in credit due to their weak financial position and the lack of collateral.
That will lead to more foreclosures — declining equity is a risk factor for default — and more defaults and foreclosures will hamper the banks' recovery and further constrain credit.
As a result, the economy lose some of the potential benefits of promising projects and the constraint of credits and credit constrained firms cannot contribute to employment generation and poverty alleviation.
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