Credit Growth
Credit growth refers to the rate at which banks expand the volume of loans extended to households and businesses.
Meaning in Practice
In practice, credit growth is measured as the annual or quarterly increase in outstanding loans. It reflects lending standards, economic conditions, and monetary policy settings. Sustainable credit growth supports economic expansion without generating excessive financial imbalances.
Why It Matters
Credit growth drives investment, consumption, and overall economic activity. Excessive growth can contribute to asset bubbles and systemic risk. Weak credit growth may signal economic slowdown or tighter financial conditions.
Market Impact
Accelerating credit growth often supports equity markets and corporate earnings expectations. Slowing credit expansion can weigh on growth forecasts and asset prices. Policymakers monitor credit trends to assess financial stability risks.
Example
During an economic expansion, banks increase lending to households and businesses, resulting in a year-on-year rise in total outstanding loans across the banking sector.