German credit institutions eased their credit standards in the third quarter 2017, according to the latest Bank Lending Survey conducted among banks domiciled in Germany.

Credit standards in the surveyed business lines (loans to enterprises, loans to households for house purchase and consumer credit) were eased slightly, on balance. In addition, credit institutions reduced margins in individual business areas or left them largely unchanged. Moreover, the banks also eased other credit terms and condition for their business clients.

According to German banks, demand for loans to enterprises, as well as for loans for private consumption, rose markedly. Demand for loans to households for house purchase, however, remained unchanged.

The October survey contained additional questions on participating banks' financing conditions, 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. The German banks reported that, given the situation in the financial markets, their funding situation had seen virtually no change in the third quarter. They once again viewed positively the impact of the EAPP on their liquidity position and funding conditions. The liquidity expansion, which was used primarily for lending, was the result of bank customers’ portfolio shifts into bank deposits and of the banks’ proprietary sales of securities. The programme weighed on banks’ profitability. The negative interest rate on the deposit facility was also reported to have played a considerable part in a decline in banks' net interest income. Owing to the negative deposit rate, lending rates and margins in all surveyed business lines fell, while the effects on the credit volume were, on balance, minor.

In the euro area as a whole, the surveyed institutions did not make any meaningful changes to their credit standards for loans to enterprises, whereas for loans to households they eased their credit standards.

In the assessment of the surveyed euro area institutions, demand for loans to enterprises and for loans to households for house purchase and for consumption rose markedly on balance in the third quarter.

Euro area banks had an overall positive view of developments in funding conditions in the third quarter. The EAPP allowed them to strengthen their liquidity position. Banks primarily used the liquidity inflows to make loans. Against the backdrop of the programme, their funding conditions improved as well. However, the programme weighed on their profitability owing to pressure on net interest margins. The negative rate of interest on the deposit facility caused net interest income, lending rates and margins to fall in the euro area, too. Although the aggregate impact on lending volumes remained positive, this effect was significantly weaker than in the April 2017 survey round.