Catching up or drifting apart: Convergence of household and business credit in Europe

•We study household and business credit convergence in Europe.•Convergence is stronger in transition economies.•Convergence is associated mostly with household credit.•Convergence only in household credit may limit the benefits of financial convergence.

We provide evidence for convergence in the levels of household and business credit across European countries. The process is particularly strong for the transition countries that have a low initial level of private credit and are catching up with Western Europe. However, the convergence is associated mostly with household credit, including housing loans and consumer credit, which may limit its benefits for economic growth.