EMU: ECB Lending Survey

January 17, 2017 03:00 CST

Actual Previous
Tighter credit standards 3% 0%

The ECB's new lending survey shows a slight tightening in credit standards for enterprises and house purchase but a further easing for consumer credit and other lending to households. Importantly, loan demand was up in all sectors.

For enterprises, net tightening (3 percent) was only mild and still well below its 11 percent long-run average and net loan demand (16 percent after 11 percent) continued to strengthen. Meantime, net tightening on lending for house purchase (1 percent) was only minimal and, potentially more significantly, net demand (36 percent after 23 percent) picked up strongly. Lastly, consumer credit and other household borrowing saw standards ease again (minus 3 percent) albeit at a marginally slower pace than in the third quarter (minus 4 percent). Net demand here (15 percent after 32 percent) also expanded briskly (long-run average minus 1 percent) but similarly at a slower rate than previously.

Overall today's results should please the ECB. By and large, not only are the banks making the required funding available but, crucially, the demand for new loans is on the up across the board. This is consistent with some acceleration in real GDP growth and suggests that the economy could begin 2017 on a relatively firm note.

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.