April 2020 survey on bank lending in the euro area
- Stricter credit standards for business and household loans
- Increased demand for business loans due to emergency cash needs related to the coronavirus pandemic
- Bank loan conditions ease thanks to targeted longer-term refinancing operations by the ECB
- ECB asset purchases support banks’ liquidity positions and market funding conditions
Credit standards – i.e. internal bank guidelines or loan approval criteria – toughened for business loans, loans to households for the purchase of a home and consumer credit and other household loans in the first quarter of 2020, according to the Bank Loans Survey (BLS) of April 2020. The net percentage of banks reporting a tightening of the criteria for granting loans or lines of credit to businesses was contained (net percentage of banks at 4%, see Chart 1). This is linked to the size and timeliness of policy measures and the greater resilience of euro area banks. For loans to households, the net tightening was a little more marked than for businesses (a net percentage of 9% for housing loans to households and 10% for consumer and other loans to households). Banks cited the deteriorating general economic outlook, increased credit risk for borrowers and lower risk tolerance as relevant factors for tightening their criteria for lending to businesses and households.
For the second quarter of 2020, banks expect a significant easing of credit criteria for businesses, probably due to support measures put in place by governments. At the same time, the dispersion of responses highlights the high uncertainty surrounding the likely impact of the coronavirus pandemic (COVID-19) and the differing views of banks on the impact on bank credit conditions. On the other hand, the net tightening of the criteria for granting loans to households should continue in the second quarter of 2020.
General conditions of banks – i.e. actual terms agreed in loan contracts – tightened in Q1 2020 for new business loans, due to increased lines of credit, collateral requirements and other conditions . For new loans to households, the net tightening in bank terms and conditions was weak in the first quarter of 2020.
Business loan requests or lines of credit jumped in the first quarter of 2020, due to their urgent liquidity needs in the context of the coronavirus pandemic (see graph 2). The demand for credit was significantly higher for short-term loans than for long-term loans, in line with the current payment needs of companies, while the financing needs for fixed investments and mergers and acquisitions have increased. decreased in net terms. The net percentage of banks reporting an increase of housing loan application decreased in the first quarter of 2020 and the net percentage linked to demand for consumer credit and other household loans turned negative. Net demand for home loans and consumer credit was supported by generally low interest rates but was held back by weak consumer confidence.
Banks expect net demand for business loans to continue growing in the second quarter of 2020. A sharply negative net balance for demand for home and consumer loans is expected by banks in the next quarter. second quarter 2020.
Regarding the impact of the ECB’s monetary policy measures, its asset purchase program, its pandemic emergency purchase program and the third round of targeted longer-term refinancing operations were a positive impact on banks’ liquidity positions and market financing conditions. In addition, these measures and the negative rate of the deposit facility had an easing effect on bank lending conditions and a positive effect on lending volumes. At the same time, the ECB’s asset purchases and the negative rate on the deposit facility are assessed by banks as having a negative impact on their profitability through a negative impact on their net interest income, while ‘A large percentage of banks say both – a tiered system for remunerating excess cash holdings supports bank profitability.
The euro area bank lending survey, conducted four times a year, was developed by the Eurosystem to improve its understanding of the credit behavior of banks in the euro area. The results reported in the April 2020 survey relate to changes observed in the first quarter of 2020 and expected changes in the second quarter of 2020, unless otherwise indicated. The April 2020 survey cycle was conducted between March 19 and April 3, 2020. A total of 144 banks were surveyed during this cycle, with a response rate of 99%.
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- A report on this round of inquiry is available at https://www.ecb.europa.eu/stats/ecb_surveys/bank_lending_survey/html/index.en.html. A copy of the questionnaire, a BLS Glossary of Terms and a BLS User Guide with information on BLS series keys are also available on this web page.
- The euro area and national data series are available on the ECB’s website via the Statistical Data Warehouse (http://sdw.ecb.europa.eu/browse.do?node=9691151). National results, as published by the respective national central banks, can be obtained via https://www.ecb.europa.eu/stats/ecb_surveys/bank_lending_survey/html/index.en.html.
- For more detailed information on the bank lending survey, see Köhler-Ulbrich, P., Hempell, H. and Scopel, S., “The euro area bank lending survey”, Occasional Paper Series, n ° 179, ECB, 2016 (http: // www. ecb.europa.eu/pub/pdf/scpops/ecbop179.en.pdf).
Changes in credit standards for business loans or lines of credit and contributing factors
Changes in demand for business loans or lines of credit and contributing factors