April results of the Bank Lending Survey in Germany
- The German banks responding to the Bank Lending Survey (BLS) tightened their credit standards for loans to enterprises marginally in the first quarter of 2022. The banks also applied stricter standards to loans to households for house purchase. Meanwhile, credit standards for consumer credit and other lending remained unchanged.
- Demand for loans increased in all surveyed lines of business. In the case of loans to enterprises, small and medium-sized enterprises were the main source of increased loan demand. In addition, demand for longer-term loans saw particular growth.
- Taken in isolation, the interest rate-reducing impact of the Eurosystem’s asset purchase programmes had a detrimental effect on banks’ profitability. In and of itself, the negative interest rate on the deposit facility also continued to contribute negatively to banks’ net interest income.
- The final targeted longer-term refinancing operation of the third series (TLTRO-III) in December 2021 had a positive impact on the profitability of the banks surveyed. The attractive conditions of the operation were a key factor in banks’ participation in TLTRO-III. The funds taken up were used primarily for granting loans and as a substitute for maturing debt securities and interbank loans.
The BLS covers three loan categories: loans to enterprises, loans to households for house purchase, and consumer credit and other lending to households. On balance, the surveyed banks tightened their credit standards (i.e. their internal guidelines or loan approval criteria) for loans to enterprises marginally. In addition, banks tightened their credit standards for loans to households for house purchase. The net percentage of banks that tightened their standards was +3% for loans to enterprises (compared with 0% in the previous quarter) and +7% for housing loans (compared with +4% in the previous quarter). The banks justified this tightening on the grounds that credit risk was, in their estimation, heightened. In the segment of loans to enterprises, this stemmed from industry and firm-specific factors, but also the deterioration of the general economic situation and outlook resulting from, inter alia, the war in Ukraine. In the case of housing loans, the gloomier residential real estate market outlook reported by banks coupled with a decline in borrowers’ creditworthiness were the largest contributing factors to this tightening. Credit standards for consumer credit and other lending, on the other hand, were left unchanged (net percentage of 0%, just as in the previous quarter). For the second quarter, banks are, on balance, planning to tighten their credit standards in all three loan categories. A net tightening of banks’ overall terms and conditions (i.e. their actual terms and conditions agreed in the loan contracts) only occurred in the segment of housing loans to households. For the most part, heightened credit risk was likewise given as the reason for these adjustments. They chiefly affected the margins on riskier loans and the loan-to-value ratio.
Demand for loans to enterprises continued to climb. Small and medium-sized enterprises, above all, requested more loans, and demand for longer-term financing grew. This uptick was, first and foremost, due to increased financing requirements for inventories and working capital as well as for fixed investment. Many enterprises presumably expanded their inventories in response to unstable supply chains and heightened uncertainty resulting from the war in Ukraine. The loan rejection rate remained unchanged on the quarter. Demand for loans for house purchase grew significantly more steeply than expected. The expectation of a continued rise in bank interest rates may have triggered frontloading effects by households here. Demands for consumer credit and other lending also increased. Over the next three months, the banks are expecting a further rise in demand for loans to enterprises. By contrast, demand for loans to households is anticipated to stagnate.
The April survey round contained ad hoc questions on participating banks’ financing conditions and the impact of the Eurosystem’s purchase programmes. Other ad hoc questions addressed the effects of the negative interest rate on the Eurosystem’s deposit facility and the two-tier system for remunerating excess liquidity holdings. The survey additionally contained questions on the Eurosystem’s TLTRO-III operations.
Against the backdrop of conditions in financial markets, German banks reported that their funding situation had deteriorated somewhat compared with the previous quarter. Over the past six months, the Eurosystem purchase programmes have helped improve the liquidity position of commercial banks and their market funding conditions, but they have still impacted negatively on bank profitability through net interest income. Survey respondents indicated that the purchase programmes had not contributed to loan growth over the last six months. Furthermore, the negative interest rate on the deposit facility once again put a strain on banks’ net interest income. Taken in isolation, it depressed lending and deposit rates and pushed up fees in deposit business. Deposits from corporations were affected to a greater degree than deposits from households. The two-tier system for remunerating excess liquidity holdings tempered the negative effect on profitability and thus had a positive impact.
Ten banks from the German sample took part in the TLTRO-III operation in December 2021, mainly on account of the attractive design. According to the banks surveyed, the operations had a positive impact on their profitability. Banks reported using the uptake in funds primarily for lending and as a substitute for maturing debt securities and interbank loans. The TLTRO-III operations had an easing impact on lending policies and contributed to a rise in lending, particularly to enterprises.
The Bank Lending Survey, which is conducted four times a year, took place between 7 March and 22 March 2022. In Germany, 33 banks took part in the survey. The response rate was 100%.