January results of the Bank Lending Survey in Germany

Overall, credit standards in Germany were eased slightly in the final quarter of 2015, as is revealed by the latest Bank Lending Survey (BLS) conducted among banks domiciled in Germany.

With credit standards remaining unchanged on balance in all surveyed categories of loans, credit institutions tightened their margins on the whole for average loans and riskier exposures during the reporting period. According to the banks, the narrowing of margins for loans to enterprises was due principally to the high degree of competitive intensity. With regard to lending to households, however, the primary reason given by banks for their narrower margins was the rise in their funding costs. Some, largely deposit-funded banks reported that it was nearly impossible to make any further reduction in their funding costs with their existing business models. Not only were margins on loans to enterprises and to households reduced, but loans to enterprises also saw a perceptible easing of the other surveyed credit conditions.

According to the information provided by German banks, demand for loans grew in all surveyed business areas, as had been the cases in the two previous surveys. Enterprises’ demand for funds showed particularly dynamic growth, with demand growing at its fastest pace since the second quarter of 2011. Households’ demand for loans for house purchase, after growing sharply in the first three quarters of last year, expanded only slightly in the reporting period.

The January BLS round contained ad hoc questions on the banks’ funding conditions, the impact of the new regulatory and supervisory activities (including the capital adequacy requirements defined in CRR/CRD IV and the requirements resulting from the ECB’s comprehensive assessment), as well as the banks’ participation in the targeted longer-term refinancing operations (TLTROs) from 2014 to 2016. Against the backdrop of the situation in the financial markets, German banks again reported a marginal improvement in their funding situation compared with the previous quarter. With a view to the new regulatory and supervisory activities, the second half of 2015 saw the banks reducing their risk-weighted assets further on balance and significantly strengthening their capital position again. As had been the case in the preceding TLTROs, the surveyed institutions showed only muted interest in the December 2015 TLTRO. Those banks which did participate cited the attractive TLTRO terms as the reason for doing so. They stated that the acquired funds were to be used chiefly for lending, in keeping with the facility’s objective. All in all, the TLTROs have led to a slight improvement in the participating banks’ financial situation, although institutions are not expecting any impact on their credit standards.

The aggregated results of the Bank Lending Survey for the euro area as a whole show an easing of European institutions’ credit standards for loans to enterprises and loans to households for house purchase. By contrast, credit standards for consumer loans remained virtually unchanged. The demand for loans to enterprises in the euro area rose considerably in the final quarter of 2015 and grew at dynamic rates not seen since the fourth quarter of 2006. The surveyed European banks likewise saw a considerable quarter-on-quarter growth in demand for loans in the areas of loans to households for house purchase and in consumer credit.

According to banks in the euro area, the funding situation deteriorated somewhat. In the wake of the new regulatory and supervisory actions, banks continued to considerably strengthen their capital position in the second half of 2015. The December 2015 TLTRO met with a cooler reception in the euro area than did the previous operations up until March 2015. According to respondents’ own information, participating banks in the euro area, too, wish to use the funds obtained primarily for lending to enterprises.