July results of the Bank Lending Survey (BLS) in Germany

German banks adjusted their credit standards to varying degrees in the three surveyed business lines in the second quarter, as is revealed by the latest Bank Lending Survey (BLS) conducted among participating banks domiciled in Germany.

While credit standards for loans to enterprises and for consumer credit remained nearly unchanged, some of the surveyed institutions were again more restrictive in their lending to households for house purchase and tightened their standards considerably on balance. According to the information they provided, this occurred, as in the previous quarter, in connection with the entry into force in March 2016 of the Act Implementing the Mortgage Credit Directive and Amending Accounting Rules (Gesetz zur Umsetzung der Wohnimmobilienkreditrichtlinie und zur Änderung handelsrechtlicher Vorschriften). Implementation did not produce equally pronounced reactions at all the institutions.

Overall, margins in the individual lines of business also showed dissimilar patterns, while they were narrowed moderately in the loans to enterprises segment, they remained unchanged for loans to households for house purchase, and went up slightly in the consumer credit segment. The margins on riskier loans were expanded slightly in the household segment and showed hardly any change in the case of loans to enterprises.

In the assessment of German banks, demand for loans increased in all three surveyed lines of business. There was an uptick in demand both for loans to enterprises and for loans to households for house purchase, although the need for funding was no longer growing at such a fast pace as in the preceding quarter. There was a clear increase in demand for consumer loans, however.

The July 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 (TLTRO and TLTRO II). 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 regard to the new regulatory and supervisory activities, the first half of 2016 saw the banks further reducing their risk-weighted assets on balance and significantly strengthening their capital position. The surveyed banks showed only slightly more interest in the first TLTRO II in June 2016 than they did in the earlier TLTROs. Significantly more banks are generally interested in the future TLTROs, however. Banks stated that their participation and/or interest was due to the attractive conditions of the operations. They stated that the acquired funds were to be used chiefly for lending, in line with the operations’ objective. All in all, the TLTROs have led to a slight improvement in the participating banks’ financial situation, although the banks are expecting hardly any impact on their credit standards.

In the euro area as a whole, the institutions surveyed again undertook a slight easing of their credit standards for loans to enterprises on balance. In business with households, credit standards for loans for house purchase were virtually unchanged overall. Credit standards for consumer credit were eased somewhat.

Survey participants in the euro area as whole stated that there was a perceptible increase in demand for loans to enterprises. There was also an increase in households’ credit demand, with a sharp rise particularly in the case of loans for house purchase.

According to banks in the euro area, the funding situation showed something of an improvement. According to the respondents themselves, banks continued to considerably strengthen their capital position in the first half of 2016 in light of the new regulatory and supervisory activities. More than half of the surveyed BLS banks took part in the first TLTRO II of June 2016. According to the respondents themselves, participating banks in the rest of the euro area, too, intend to use the funds obtained primarily for lending to enterprises.