January results of the Bank Lending Survey in Germany

  • German banks tightened the terms and conditions for loans to enterprises and to households for house purchase by widening margins.
  • Credit standards for loans to enterprises and for loans to households for house purchase remained unchanged.
  • Demand for credit increased further in all surveyed lines of business.
  • In the second half of 2019, the non-performing loans (NPL) ratio had no impact on changes in lending policy.
  • Four banks from the German sample of the Bank Lending Survey took part in the second targeted longer-term refinancing operation of the third series (TLTRO III), conducted in December 2019. They reported wanting to use the funds primarily for substituting the funds taken up under TLTRO II and for lending.

The Bank Lending Survey (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 unchanged in the fourth quarter of 2019. The banks did not change their credit standards for loans for house purchase or for consumer credit and other lending to households, either.

The surveyed institutions tightened their terms and conditions (i.e. the actual terms and conditions agreed in the loan contracts) for loans to enterprises by once again expanding margins, in particular, across all categories of creditworthiness. The primary reason reported by banks was a restrictive impact of the cost of funds and balance sheet constraints. Banks made the terms and conditions for loans to households for house purchase, too, stricter for borrowers. This was reflected chiefly in increased margins on riskier loans. The institutions lowered their margins on consumer credit and other lending to households irrespective of credit rating, however. Other surveyed conditions in this credit segment, such as collateral requirements or non-interest rate charges, remained unchanged on balance.

The banks stated that demand for credit rose further in all the surveyed lines of business, especially loans to households for house purchase. All the same, however, the increase in this area failed to match the dynamic growth of the two preceding quarters. The current uptick in demand in all credit segments was driven primarily by the low general interest rate level. As regards loans for house purchase, households’ continuing positive outlook regarding the housing market and house price developments was also a factor.

The January BLS round contained ad hoc questions on the banks’ funding conditions and 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 on the impact of NPLs on banks’ lending policy. The banks were also surveyed for the first time regarding the Eurosystem’s new series of targeted longer-term refinancing operations (TLTRO III).

Against the backdrop of the situation in financial markets, German banks reported virtually no change in their funding situation compared with the previous quarter. In the wake of the new regulatory and supervisory activities, they continued to strengthen their capital position in the second half of 2019. During the same period, the NPL ratio (percentage ratio of (gross) NPLs to the gross book value of loans) did not affect the lending policies of the surveyed banks.

Whereas none of the banks contained in the German sample of the Bank Lending Survey took part in the first TLTRO III operation in September, in December four banks from the sample participated. The reason these banks gave for taking part was mainly to capitalise on the attractive conditions of the operation. They reported using these funds to substitute TLTRO II funds. In keeping with the monetary policy purpose of the measure, the banks wish to use the liquidity for lending to the non-financial sector. TLTRO III had a positive direct or indirect effect on the banks’ financial situation through improved funding conditions and a more comfortable liquidity position. It had no impact on credit standards or credit terms and conditions, however.

The Bank Lending Survey, which is conducted four times a year, took place between 6 December and 27 December 2019. In Germany, 34 banks took part in the survey. The response rate was 100%.