January results of the Bank Lending Survey in Germany
- The German banks responding to the Bank Lending Survey (BLS) once again tightened their lending policies in loans to enterprises in the fourth quarter of 2020. The standards for loans to households for house purchase remained unchanged.
- The actual terms and conditions for loans to enterprises and to households for house purchase were likewise tightened. This was reflected (primarily) in widening margins.
- The NPL ratio played only a marginal role in the tightening of lending policies in the second half of the year. The banks are expecting it to have a significantly more restrictive impact in the first half of 2021, however.
- The surveyed banks assume that enterprises used government-guaranteed loans extended under coronavirus assistance programmes chiefly to meet acute liquidity needs and for liquidity provisioning purposes.
- Demand for loans to enterprises and for house purchase continued to rise.
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 once again tightened their credit standards (i.e. their internal guidelines or loan approval criteria) for loans to enterprises (the net percentage of banks which tightened their standards was +6%, as in the previous quarter). The main reason cited by the banks was what they viewed as heightened credit risk. Standards for loans to households for house purchase (net percentage of +0% following +7% in the previous quarter) and for consumer credit and other lending to households (net percentage of +0% following +7% in the previous quarter) remained unchanged. The banks are planning to tighten their standards for loans to enterprises and loans for house purchase over the coming three months. In addition, the surveyed credit institutions tightened their terms and conditions (i.e. the actual terms and conditions agreed in the loan contracts) for loans to enterprises and private housing loans. This was reflected chiefly in increased margins on riskier loans. Furthermore, banks imposed more stringent collateral requirements in response to persistently high uncertainty concerning economic developments going forward. Credit conditions for consumer credit and other lending were eased, however. Overall, the adjustments to lending policy suggest that banks are responding to heightened borrower-side risks.
Demand for loans to enterprises continued to climb, though not as steeply as the banks had expected. The increase also fell well short of the strong rise in the three previous quarters. Once again, the increase in demand was driven by high financing needs for inventory and working capital. In many cases, the assistance for November and December promised by the government had apparently been prefinanced by bank loans. The loan rejection rates remained at an elevated level. Enterprises from sectors hit particularly hard by the crisis, such as accommodation and food service activities and the retail trade, found it more difficult to access credit. Demand for loans for house purchase likewise continued to rise. Banks reported funding needs in the case of consumer credit and other lending to be largely unchanged. Over the next three months, banks expect demand for loans to enterprises to increase further and demand for loans to households for house purchase to fall. On the other hand, they are not expecting any major change in demand for consumer credit and other lending.
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. It also contained a question on lending policy and loan demand in the key economic sectors as well as, for the first time, 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. Funding through debt securities and in the unsecured money market, in particular, improved. In the wake of the new regulatory and supervisory activities, banks continued to strengthen their capital position last year. The surveyed banks reported that the size of the NPL ratio (percentage ratio of (gross) non-performing loans to the gross book value of the loans) made only a marginal contribution to a tightening of their lending policies in the second half of 2020. In the first half of 2021, however, banks are anticipating an increase in the restrictive impact, especially with regard to loans to enterprises. In the second half of the year, the interviewed banks tightened their lending policies for all major economic sectors. Credit standards for government-guaranteed coronavirus assistance loans were eased in 2020 in contrast to those for normal loans. Such loans were in demand in order to meet acute liquidity needs and to build up precautionary liquidity buffers.
The Bank Lending Survey, which is conducted four times a year, took place between 4 December and 29 December 2020. In Germany, 34 banks took part in the survey. The response rate was 100%.