EMU: ECB Lending Survey

Tue Apr 25 03:00:00 CDT 2017

Actual Previous Revised
Tighter credit standards -2% 3% 5%

The ECB's latest lending survey shows both an easing in credit conditions and stronger loan demand across all the major categories last quarter.

The balance of banks reporting a net tightening in standards on lending to enterprises eased from 5 percent in the fourth quarter to minus 2 percent and so fell further below its 10 percent long-run average. The balance signalling stronger demand (6 percent after 18 percent) declined but still pointed to positive growth and was similarly comfortably stronger than its minus 4 percent long-run mean. Moreover, banks also anticipate a pick-up this quarter (12 percent).

Standards on borrowing for house purchase eased to minus 5 percent from 1 percent while demand (24 percent after 36 percent) remained robust. Finally, consumer credit terms (minus 7 percent after minus 3 percent) followed a similar pattern while the demand balance (15 percent) held at the previous period's solid level.

Overall today's results should sit well with the ECB which will see the findings as further proof that its policies are working.

The European Central Bank's quarterly lending survey of around one hundred and forty banks aims to enhance the Eurosystem's knowledge of financing conditions in the Eurozone and so help the central bank to assess monetary and economic developments as an input into monetary policy decisions. It is designed to complement existing statistics on retail bank interest rates and credit with information on supply and demand conditions in the euro area credit markets and the lending policies of euro area banks. The survey addresses issues such as credit standards for approving loans as well as credit terms and conditions applied to enterprises and households. It also asks for an assessment of the conditions affecting credit demand.

Particularly in the wake of the Great Recession, changes in financial market conditions can have a major say in central bank policy, and hence, the level of asset prices. The main focus is the net percentage of reporting banks indicating tightening credit standards or positive loan demand with regards to enterprises, house purchase and consumer credit. An unwanted tightening of standards or undesired fall in lending could prompt a softer monetary stance from the ECB, potentially entailing lower official short-term interest rates and possible efforts to reduce the cost of longer-term loans.