April results of the Bank Lending Survey (BLS) in Germany
- In the opening quarter of 2019, German banks tightened their credit standards marginally overall for loans to enterprises and slightly for loans to households for house purchase. The reasons they gave for these adjustments had to do mostly with a gloomier assessment of the economic situation and the economic outlook as well as a reduced risk tolerance. Credit standards for consumer credit and other lending to households, on the other hand, remained unchanged on balance. At the same time, credit conditions changed only marginally. The tightening of margins on average loans to households for house purchase was an exception.
- Demand for loans in all three loan categories picked up once again.
- Participating banks reported a continued tightening of current credit standards in all three loan categories relative to the midpoint of the historical range set by the standards implemented since 2003.
- The Eurosystem’s expanded asset purchase programme (APP) continued to weigh on banks’ earnings, depressing their net interest income in particular. At the same time, the banks reported that the programme was having a low impact on lending policies and the credit volume.
- Credit institutions reported that the negative interest rate on the deposit facility had weighed visibly on their net interest income over the past six months. The only positive effects of the negative interest rate on lending volumes were seen by banks in the segment of loans to households for house purchase.
The survey covers three loan categories: loans to enterprises, loans to households for house purchase, and consumer credit and other lending to households. The surveyed banks tightened their credit standards (i.e. their internal guidelines or loan approval criteria) for loans to enterprises in the first quarter of 2019 for the first time since 2015, albeit only to a minor extent. On balance, banks slightly tightened their criteria also for loans to households for house purchase. Both tightenings had been expected in the preceding quarter. The reasons given for tightening credit standards for loans to enterprises were a deterioration in the assessment of the economic situation and economic outlook, industry-specific and firm-specific factors, and borrowers’ creditworthiness. Banks tightened their credit standards for loans to households for house purchase largely because of their reduced risk tolerance. Loan approval criteria for consumer credit and other lending to households remained unchanged, as expected.
Banks marginally tightened their overall terms and conditions (i.e. the actual terms and conditions agreed in the loan contracts) for loans to enterprises on balance. Credit conditions for loans to households for house purchase remained unchanged for the first time following a relatively lengthy period of easing. In addition, institutions marginally widened their margins for average loans to enterprises, whereas margins for loans to households for house purchase saw another perceptible narrowing. Only for loans to households for house purchase were margins for riskier loans minimally expanded. Terms and conditions for consumer credit and other loans to households remained virtually unchanged overall.
According to the responding banks, demand for loans climbed across all the business lines surveyed, although the increases in the respective credit segments were uneven. Demand for loans to enterprises rose markedly, showing a stronger than expected increase. The demand for loans to households for house purchase picked up perceptibly, and that for consumer credit and other lending was slightly higher; both of these rises had been largely expected by banks. The upturn in demand for loans to enterprises was driven primarily by an increase in financing needs for fixed investment. Demand for loans to households was impacted positively by the low general level of interest rates, the outlook in the housing market, the likely path of residential real estate prices, and the high propensity to acquire durable consumer goods.
The April survey contained ad hoc questions on banks' financing conditions, the levels of credit standards, the impact of the Eurosystem's expanded asset purchase programme (APP), and the consequences for credit business of the negative interest rate on the Eurosystem's deposit facility. Against the backdrop of conditions in financial markets, German banks reported virtually no change in their funding situation compared with the previous quarter. Relative to the midpoint of the range set by the standards implemented since 2003, respondents reported their current credit standards for loans to enterprises and for consumer credit and other loans to households as somewhat tighter and those for loans to households for house purchase as considerably tighter.
The banks reported that the Eurosystem’s APP was improving their liquidity position. Contrary to the responses given in earlier survey rounds, the programme was not helping to improve their market financing conditions. Moreover, it was still weighing on their earnings, albeit less heavily than in earlier survey rounds. Like in the previous survey round, the programme had no meaningful impact on lending policies and the credit volume.
The negative interest rate on the deposit facility was another factor in banks’ net interest income shrinking over the past six months due to its dampening impact on lending rates, amongst other reasons. At the same time, according to the banks’ assessment, the negative interest rate on the deposit facility led to a slight increase in the volume of loans given to households for house purchase, when viewed in isolation, whereas it had no meaningful impact on loans to enterprises and on consumer credit and other lending.
The Bank Lending Survey, which is conducted four times a year, took place between 4 March and 19 March 2019. In Germany, 34 banks took part in the survey. The response rate was 100%.