EMU: ECB Lending Survey

Tue Jan 23 03:00:00 CST 2018

Actual Previous
Tighter credit standards 0% -1%

The ECB's January lending survey found fourth quarter credit developments suitably upbeat. Indeed, loan growth benefitted from a further broad-based increase in demand as well as an easing on credit standards on loans for house purchase.

The balance of banks reporting easier credit standards for Eurozone enterprises was 0 percent after a minus 1 percent reading in the third quarter. However, net loan demand gained 6 percentage points to 21 percent (Italy 50 percent after 10 percent), well above its minus 3 percent long-run average. Credit standards on lending for house (minus 6 percent after minus 11 percent) continued to ease, albeit not as quickly as last time, and demand (8 percent after 12 percent) extended its positive run. Consumer credit also saw an additional modest easing in standards (minus 1 percent after minus 4 percent) and this will have supported another solid increase in net loan demand (11 percent after 17 percent).

Today's results are in keeping with a robust Eurozone economic upswing and suggest that banks are becoming increasingly confident about the business outlook. With expectations for the current quarter also positive, the ECB will view these findings as further proof that its QE asset purchase programme is having the desired effect.

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.