EMU: ECB Lending Survey

Tue Oct 24 03:00:00 CDT 2017

Actual Previous
Tighter credit standards -1% -3%

The ECB's third quarter lending survey shows loan growth supported by both increasing demand across all categories and by easing credit standards on loans to households.

Loans to enterprises were broadly unchanged (minus 1 percent after minus 3 percent) despite expectations in the previous survey that they would continue to ease. However, by contrast, credit standards on loans to households for house purchase eased further (minus 11 percent after minus 4 percent) as did credit standards on consumer credit and other lending to households (minus 4 percent after 1 percent). Looking into the current quarter, banks expect credit standards on loans to enterprises to remain unchanged and see a further net easing for housing loans (minus 3 percent) and consumer credit (minus 2 percent).

At least as importantly, the survey also found an increase in net loan demand for all the major sectors. Enterprises (15 percent after 14 percent) moved in line with second quarter expectations and banks anticipate net demand to increase further in the fourth quarter (26 percent). At the same time, net demand was up again for both housing loans (12 percent after 19 percent) and consumer credit (17 percent after 11 percent). For this quarter, banks expect a rise in net demand for housing loans (23 percent) and consumer credit (16 percent).

Overall the ECB should be quite comfortable with today's findings. Not only is loan demand on the up, but banks are happy to provide the funds.

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.