April results of the Bank Lending Survey (BLS) in Germany
In the first quarter of 2017, German credit institutions eased their credit standards in some areas. This is revealed by the latest Bank Lending Survey (BLS) conducted among banks domiciled in Germany.
Credit standards for loans to enterprises and for consumer credit remained virtually constant on balance. This stood in contrast to loans to households for house purchase, for which the banks’ credit standards were generally somewhat more expansionary. Furthermore, institutions reduced their margins in all credit segments, mainly in average-risk loans, and also eased part of their other credit terms and conditions somewhat in favour of their borrowers.
According to the information supplied by German banks, demand for loans varied in the individual areas of business. While demand for loans to enterprises and consumer credit showed a marked increase on balance, demand for loans to households for house purchase remained essentially unchanged.
The April survey contained additional questions on banks' financing conditions, the levels of credit standards, the impact of the Eurosystem's expanded asset purchase programme (EAPP), and the consequences for credit business of the negative interest rate on the Eurosystem's deposit facility. The German banks reported that, given the situation in the financial markets, their funding situation had shown a perceptible improvement compared with the preceding quarter. Credit standards for loans to enterprises and consumer loans alike are currently somewhat higher than their average level relative to the midpoint of the range set by the credit standards implemented since the second quarter of 2010, whereas the standards for loans to households for house purchase are even considerably tighter than the benchmark. According to the banks, the Eurosystem’s EAPP was improving their liquidity position and their funding conditions. The increase in liquidity, some of which was being used for lending, was chiefly the outcome of bank customers' portfolio shifts towards bank deposits and not so much of the banks' own sales of securities. Nevertheless, the German banks taking part in the survey also reported on a broad front that the purchase programme was exerting pressure on their net interest margins and therefore placing a strain on their profitability. The negative interest rate on the deposit facility was also reported to have played a considerable part in the decline in banks' net interest income over the past six months. Owing to the negative deposit rate, both lending rates and margins in all surveyed business lines fell, while the effects on the credit volume were limited.
In the euro area as a whole, the surveyed institutions left their standards for loans to enterprises virtually unchanged and eased them slightly for loans to households.
In the assessment of banks surveyed in the euro area, the most visible increase in demand was in loans to private households for house purchase, with demand for consumer loans also showing a marked rise. The banks participating in the survey noted only a slight increase in demand for loans to enterprises, however.
The assessment of the banks taking part in the BLS was that their funding situation had shown something of an improvement in the reporting quarter. Relative to the midpoint of the range of credit standards they have been applying since the spring of 2010, European banks have been assessing the current level of their credit standards for both loans to enterprises and consumer credit as similarly restrictive and that of standards for lending to households for house purchase as somewhat more restrictive. As a result of the EAPP, there was an improvement in the liquidity position and funding conditions of banks in the euro area as a whole. At the same time, institutions in other European countries, too, reported strains on their profitability. The participating euro-area banks reported that they were intending to use the inflow of liquidity primarily for lending. The negative interest rate on the deposit facility was reported as causing a decline in net interest income, lending rates and margins in the euro area, too. The impact on the credit volume was positive at the aggregate level.