Sharp rise in demand for loans for house purchase in Germany

Households' demand for loans accelerated rapidly in Germany in the first quarter of 2015. This is revealed by the Bundesbank's most recent round of the Bank Lending Survey. According to the Bundesbank, this was due, in particular, to private housing construction: "Demand for loans to households for house purchase grew substantially, exceeding the expectations expressed by bank managers in the previous quarter," say the Bundesbank economists. The Bank Lending Survey involves the Eurosystem central banks surveying a sample of commercial banks in the euro area every three months on whether institutions have eased or tightened their credit standards when issuing new loans and on how demand for credit has been developing from their perspective. The Bank Lending Survey covers three lines of business: loans to enterprises, consumer credit and loans for house purchase.

German enterprises' demand for loans unchanged

In addition to the sharp rise in demand for loans for house purchase, the surveyed banks also reported a noticeable increase in demand for consumer credit in Germany compared with the final quarter of 2014. By contrast, demand for loans to enterprises was unchanged overall on the quarter. On balance, the surveyed banks were still experiencing significant growth in this line of business at the end of 2014.
Demand for loans, which picked up significantly in some cases, was met with only marginally changed credit standards on the part of German credit institutions. On balance, the surveyed German banks' credit standards for consumer loans remained unchanged on the quarter. Furthermore, institutions saw little need to adjust their credit standards for loans for house purchase or for loans to enterprises. With respect to the surveyed conditions, banks loosened several barriers to enterprises seeking loans while making hardly any changes across the board in the case of loans to households. These conditions include, for example, collateral requirements, covenants and non-interest rate charges.

Overall easing of euro-area credit standards

In the euro area as a whole, banks moderately eased their credit standards for loans to enterprises in the first quarter of 2015. As announced by the European Central Bank (ECB), the percentage of banks that eased their credit standards for loans to enterprises compared with the preceding quarter was higher than the percentage of banks with tighter credit standards. The ECB reported that this “net easing” was 9% for the euro area as a whole. In the final quarter of 2014, the figure was still 5%. Of the five largest countries in the euro area measured in terms of economic performance, Italy's credit institutions eased their credit standards to a particularly significant degree. This resulted in net easing of 25% in the first quarter of 2015. According to the ECB survey, this easing of credit standards was accompanied by a slight rise in demand for loans to enterprises, with the net increase in demand for loans to enterprises amounting to 6% for the euro area as a whole. The ECB also found that banks slightly eased their standards for consumer credit. By contrast, standards for loans for house purchase were tightened slightly.

Growing competition for bank customers

According to the ECB, one factor influencing developments in standards for loans to enterprises is the growing competition for customers among banks. Other factors cited by the ECB as having the effect of easing standards include favourable financing conditions and institutions' improved balance sheet positions. From the ECB's perspective, the expanded asset purchase programme (EAPP) launched in March 2015 also made itself felt in the form of eased credit standards and, above all, more favourable credit conditions. Under this programme, the Eurosystem has been purchasing securities, particularly sovereign bonds, from commercial banks on a monthly basis since March 2015 with a value of €60 billion. One of the programme's objectives is to boost lending in the euro area. While the ECB states that institutions are using some of these funds for the supply of new credit, it estimates that banks' credit standards are still very tight in historical terms. According to the Bundesbank, however, banks in Germany do not expect the EAPP to have any impact on their credit standards. "According to participating banks, the EAPP improves their financing conditions but also places a significant strain on their profitability," was how the Bundesbank commented on the German results of the Bank Lending Survey. "Hardly any of the German banks participating in the survey intend to sell marketable assets under the programme."