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

German banks adjusted their credit standards chiefly by narrowing margins in the third quarter of 2016, as is revealed by the latest Bank Lending Survey (BLS) conducted among the participating banks domiciled in Germany.

Credit standards for loans to enterprises and for consumer credit remained almost unchanged on balance. The majority of banks surveyed for the BLS did not change their credit standards for loans to households for house purchase, either. Against the backdrop of the Act Implementing the Mortgage Credit Directive and Amending Accounting Rules (Gesetz zur Umsetzung der Wohnimmobilienkreditrichtlinie und zur Änderung handelsrechtlicher Vorschriften), which entered into force in March 2016, credit standards were tightened somewhat only in a few individual cases. Such cases of tighter credit standards being applied were on a much smaller scale than in the previous quarter. By contrast, the surveyed credit institutions narrowed their margins on average loans considerably on balance and narrowed margins somewhat on average loans for house purchase. In the case of riskier loans, they left margins basically unchanged in all the surveyed lines of business.

According to the information supplied by German banks, demand for loans varied in the individual areas of business surveyed. Enterprises’ demand for loans increased somewhat on balance and demand for consumer credit increased considerably. In the estimation of the surveyed banks, households' demand for loans for house purchase declined to a moderate extent for the first time since 2010. The banks felt that the loss of market share to competing institutions was one of the factors responsible for this.

The October survey contained additional questions on participating banks’ financing conditions, the level of credit standards, the impact of the Eurosystem’s expanded asset purchase programme (EAPP) and the consequences for credit business of the negative interest rate on the Eurosystem’s deposit facility. 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. The banks reported that the Eurosystem’s EAPP was improving their liquidity position and their funding conditions. The increase in liquidity, which was used inter alia for lending, was chiefly the outcome of bank customers’ portfolio shifts towards bank deposits and not so much of the banks’ own sales of securities. However, the German banks taking part in the survey also reported on a broad front that the purchase programme was exerting pressure on their net lending margins and thus weighing on their profitability, with the negative interest rate on the deposit facility also playing a considerable part in a decline in banks’ net interest income over the past six months. Owing to the negative deposit rate, lending rates and margins in all surveyed business lines fell, while the effects on the volume of loans were limited.

In the euro area as a whole, the surveyed institutions undertook no further easing of their credit standards for loans to enterprises for the first time in more than two years. Easing of credit standards was also minor in business with households.

Survey participants in the euro area as whole stated that there was a considerable increase in demand for loans to enterprises. The banks noted considerable growth in demand for funds in business with households.

Banks in the euro area as a whole reported that the funding situation had improved somewhat. The EAPP met with somewhat stronger interest in the rest of the euro area over the past six months than in Germany. Much as in Germany, the programme brought about an improvement in the liquidity position and financing terms of euro-area banks. At the same time, European institutions also reported strains on their profitability as a result of lower net interest margins. The participating euro-area banks stated that they were using the additional liquidity primarily for lending. Broadly speaking, the information provided by European banks on the impact of the negative interest rates on the deposit facility was similar to that given by German institutions. Nevertheless, growth in the volume of credit was reported at the aggregate level of the euro area.