July results of the Bank Lending Survey in Germany
- The German banks responding to the Bank Lending Survey (BLS) eased their credit standards and terms and conditions for loans to enterprises in the second quarter of 2021, for the first time since the outbreak of the coronavirus pandemic.
- Credit standards and terms and conditions for loans to households for house purchase and for consumer credit and other lending to households were also eased.
- The NPL ratio did not affect the surveyed banks’ lending policies in the first half-year. Banks are expecting a marginally restrictive impact for the second half of 2021.
- Demand for loans to enterprises remained unchanged. Corporate demand for government-guaranteed loans granted under the coronavirus assistance programmes declined significantly in the first six months of 2021, meanwhile.
- Households showed greater demand for loans for house purchase and for consumer credit and other 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 marginally eased their credit standards (i.e. their internal guidelines or loan approval criteria) for loans to enterprises in the second quarter of 2021, for the first time since the outbreak of the coronavirus pandemic. The net percentage of banks that tightened their standards less the share of banks that eased their standards, was -3%, after +6% in the previous quarter. Furthermore, there was an easing of standards for loans to households for house purchase (net percentage of -7%, after +0% in the previous quarter) and for consumer credit and other lending (net percentage of -17%, after -3% in the previous quarter). Banks indicated that these easings were due in particular to what they saw as a decline in credit risk and their increased risk tolerance. For the next three months, banks are planning to tighten their credit standards on balance for loans to enterprises and for house purchase. They do not intend to make any notable changes to their credit standards for consumer credit and other lending to households, on the other hand. Banks also reported easing their terms and conditions (i.e. their actual terms and conditions agreed in the loan contract) overall across all the surveyed loan categories, naming improvements in the cost of funds and balance sheet constraints in business with enterprises as their reasons for doing so. In business with households, the tense competitive situation was a key factor, alongside the banks’ more positive assessment of credit risk.
Demand for loans to enterprises remained unchanged on balance in the second quarter of 2021. Banks registered an increase in demand for debt refinancing/restructuring and renegotiation, and reported an increase in financing needs for fixed investment, inventories and working capital, and for mergers/acquisitions and corporate restructuring. At the same time, however, they said that demand had been dampened because enterprises had made greater use of internal financing and loans from other banks. The loan rejection rate remained relatively high. Above all, enterprises from sectors hit particularly hard by the coronavirus pandemic, such as accommodation and food service activities and the retail trade, probably still found it more difficult to access credit than enterprises from other sectors. Banks reported a further increase in demand for loans for house purchase and for consumer credit and other lending to households, mainly citing the improved consumer confidence and the low general level of interest rates as factors that contributed to the increased demand. For the next three months, banks are expecting to see demand increase across all the surveyed lending categories.
The July survey round contained ad hoc questions on participating banks’ funding conditions and the impact of non-performing loans on banks’ lending policy. It also contained a question on lending policy and loan demand in the key economic sectors as well as the ad hoc question introduced in January on loans with COVID-19-related government guarantees.
Against the backdrop of conditions in financial markets, German banks reported that their funding situation was largely unchanged compared with the previous quarter. Contrary to the banks’ expectations, the size of the NPL ratio (percentage ratio of (gross) non-performing loans to the gross book value of the loans) no longer had an impact on lending policies in corporate business or on business with households in the first half of 2021. For the second half of 2021, banks are expecting to see a marginally restrictive effect on credit standards and terms and conditions for loans to enterprises. The first half of the year saw the banks surveyed as part of the BLS continue tightening their lending policies on balance in almost all major economic sectors, only easing their lending policies for the residential real estate sector. However, the tightenings were smaller than they had been in the last survey round in January 2021. Banks indicated that demand for loans to enterprises with COVID-19-related government guarantees had declined significantly, one reason being that large enterprises in particular had shown less demand for funding to cover acute liquidity needs.
The Bank Lending Survey, which is conducted four times a year, took place between 14 June and 29 June 2021. In Germany, 34 banks took part in the survey. The response rate was 100%.