EMU: ECB Lending Survey

Tue Apr 24 03:00:00 CDT 2018

Actual Previous
Tighter credit standards -8% 0%

The ECB's first quarter lending survey found a marked easing of credit standards on private sector borrowing. At least as importantly, it also reported increased demand across all loan categories.

Thus, credit standards for loans to enterprises eased markedly (-8 percent after 0 percent) and comfortably exceeded expectations reported in the previous survey round. In addition, standards on loans for house purchase (-11 percent after -6 percent) and on consumer credit and other lending to households (-3 percent after -1 percent) followed suit. Promisingly, for the current quarter, banks also expect a further net easing in all three loan categories (enterprises: -2 percent, housing -12 percent and consumer credit -8 percent).

Importantly too, net demand for loans to enterprises continued to rise (15 percent after 21 percent). This was much as expected last time. Banks similarly see net demand increasing further in the current period (22 percent). Meanwhile, net demand rose further for both housing loans (5 percent after 8 percent) and consumer credit and other lending to households (14 percent after 11 percent). For the second quarter, banks anticipate a sustained expansion in net demand for housing loans (18 percent) and consumer credit (22 percent).

The ECB should be pleased with these results which it will see as additional evidence that policy is working. Today's survey also offers some hope that the current slowdown in Eurozone economic activity might be short-lived.

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.