• The German banks responding to the Bank Lending Survey (BLS) left their credit standards for loans to enterprises and for consumer credit and other lending to households unchanged in the fourth quarter of 2021. Credit standards for loans to households for house purchase were marginally tightened.
• Credit terms and conditions for loans to enterprises and also for loans to households were eased. This was reflected chiefly in narrower margins.
• The NPL ratio had no meaningful impact on lending policies in the second half of 2021. The banks are not expecting any meaningful influence for the first half of 2022, either.
• Demand for loans to enterprises and for loans to households increased further. Corporate demand among large enterprises for government-guaranteed loans granted under the coronavirus assistance programmes continued to decline in the second half of 2021. Among small and medium-sized enterprises, it picked up marginally following the decline in the first half of 2021.
• In the second half of 2021, banks left their credit standards largely unchanged in nearly all surveyed sectors of the economy. Only in the commercial real estate sector did they report a discernible tightening.

The BLS covers three loan categories: loans to enterprises, loans to households for house purchase, and consumer credit and other lending to households. The surveyed banks kept their credit standards (i.e. their internal guidelines or loan approval criteria) for loans to enterprises (net percentage of +0% following +3% a quarter earlier) and for consumer credit and other lending to households (net percentage of +0% following -3% a quarter earlier) unchanged. The standards for loans to households for house purchase were marginally tightened (net percentage of +4% following +4% a quarter earlier). The banks are planning to ease their standards for loans to enterprises and consumer credit and other lending to households over the coming three months. They are, furthermore, planning a further minimal tightening for loans for house purchase. In addition, the surveyed credit institutions eased their terms and conditions (i.e. the actual terms and conditions agreed in the loan contracts) for loans to enterprises and for loans to households. However, this easing was confined almost exclusively to margins, which were narrowed by banks for average loans, in particular.

Demand for loans to enterprises continued to climb, though not as steeply as the banks had been expecting. Banks mainly attributed this uptick in demand to financing needed for inventories and working capital as well as for fixed investment. The impact of supply bottlenecks, which had still been cited as a factor limiting demand in the previous survey round, was hardly perceptible any more in the fourth quarter. The low general level of interest rates, along with mergers, acquisitions and restructuring, all additionally contributed to the overall rise in loan demand. The loan rejection rate for loans to enterprises remained relatively high. Demand for loans for house purchase and for consumer credit and other lending increased again in the fourth quarter. Over the next three months, banks expect a further increase in demand for loans across all three surveyed loan categories.

The January BLS round contained ad hoc questions on the banks’ funding conditions and the impact of the new regulatory and supervisory activities relating to capital, leverage, liquidity or provisioning, as well as on the impact of non-performing loans (NPLs) on banks’ lending policy. It also contained a question on lending policy and loan demand in the key economic sectors as well as a question on loans with COVID-19-related government guarantees.

Against the backdrop of conditions in financial markets, German banks reported an improvement in their funding situation compared with the previous quarter. Banks responded to new regulatory and supervisory activities by continuing to strengthen their capital position last year. In the second half of 2021, consistent with banks’ expectations, the size of the NPL ratio (percentage share of NPL stocks (gross) to the gross book value of loans) had only a marginal impact, or none whatsoever, on lending policy. For the first half of 2022, too, the banks are not expecting the NPL ratio to exert any meaningful influence on their lending policy. In the second half of 2021, German banks left credit standards largely unchanged in nearly all surveyed sectors of the economy. Only in the commercial real estate sector did they report a discernible tightening. For the first half of 2022, banks are planning to ease their standards for commercial real estate lending and to tighten standards for loans to the residential real estate sector. Banks reported a continued decline in demand for loans to enterprises with COVID-19-related government guarantees among large enterprises in the second half of 2021. The reason cited for this was a reduction in the need for funds for fixed investment and to substitute existing loans. Demand amongst small and medium-sized enterprises rose marginally because more funding was once again requested in order to meet acute liquidity needs.

The Bank Lending Survey, which is conducted four times a year, took place between 13 December 2021 and 11 January 2022. In Germany, 34 banks took part in the survey. The response rate was 100%.