July results of the Bank Lending Survey in Germany
- German banks tightened their credit standards for loans to enterprises for the second time in a row whilst easing them somewhat for loans to households for house purchase.
- At the same time, banks’ overall credit terms and conditions were tightened in both credit segments, particularly by increasing margins on riskier loans.
- Household demand for loans for house purchase grew significantly more steeply than expected. Chiefly responsible for the increase in demand was the low general interest rate level. Demand for loans to enterprises with longer interest rate fixation periods rose once again.
- In the first half of 2019, the non-performing loans (NPL) ratio had no impact on lending policy; however, for the first time, this ratio is expected to have a tightening impact on lending to enterprises over the next six months.
The survey covers three loan categories: loans to enterprises, loans to households for house purchase, and consumer credit and other lending to households. The surveyed banks tightened their credit standards (i.e. their internal guidelines or loan approval criteria) for loans to enterprises for the second time in a row (net percentage of reporting banks at +3%, as in the previous survey). This chiefly affected loans to large enterprises. A less favourable assessment of the industry or firm-specific situation as well as borrowers’ creditworthiness was cited as the main reason for this adjustment. This is also reflected in the greater share of rejected loan applications. Credit standards on loans to households for house purchase, by contrast, were eased for competitive reasons (net percentage of reporting banks at -3%, compared with +7% in the previous quarter). Loan approval criteria for consumer credit and other lending to households remained unchanged.
Banks tightened their overall terms and conditions (i.e. the actual terms and conditions agreed in the loan contracts) for both loans to enterprises and loans to households for house purchase on balance. Margins on riskier loans, in particular, were widened. The margins on average-risk loans were not narrowed any further. Terms and conditions for consumer credit and other loans to households remained broadly unchanged.
The banks stated that demand for credit showed a further increase in all the surveyed lines of business. While demand for loans to enterprises rose as had been anticipated during the previous quarter, demand for loans to households for house purchase far exceeded expectations. The key driver of this growth, according to the surveyed banks, was the low general interest rate level.
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 on the impact of NPLs on banks’ lending policy. The surveyed banks reported that, given the situation in the financial markets, their funding situation had shown an improvement. In the wake of the new regulatory and supervisory activities, they continued to strengthen their capital position by retaining profits, in particular, in the first half of 2019. During the same period, the size of the NPL ratio (percentage ratio of the stock of gross NPLs on the bank balance sheet to the gross book value of loans) did not affect the lending policies of the surveyed banks. In the next six months, however, the banks expect the NPL ratio to have a tightening impact on credit standards and conditions for loans to enterprises for the first time.
The Bank Lending Survey, which is conducted four times a year, took place between 17 June and 2 July 2019. In Germany, 34 banks took part in the survey. The response rate was 100%.