24 July 2018

ECB: Results of the July 2018 euro area bank lending survey

Credit standards for loans to enterprises eased in net terms in the second quarter of 2018, according to the July 2018 bank lending survey (BLS).

Banks’ overall terms and conditions (i.e. banks’ actual terms and conditions agreed in the loan contract) on new loans eased across all loan categories in the second quarter of 2018, driven mainly by a narrowing of margins on average loans, while margins on riskier loans also eased across all loan categories, albeit to a lesser extent.

Net demand continued to increase across all loan categories in the second quarter of 2018. The net increase in demand for loans to enterprises was driven mainly by the general level of interest rates, inventories and working capital, and M&A activity. Net demand for housing loans continued to be driven mainly by the low general level of interest rates, favourable housing market prospects and consumer confidence.

With regard to the impact of banks’ non-performing loans (NPLs) on their lending policies, euro area banks reported that NPLs contributed to a tightening in their credit standards and terms and conditions across all categories of loans over the past six months. However, this tightening impact has generally diminished relative to the impact between 2014 and 2017, and it is expected to decrease further in the next six months. Banks’ NPL ratios affected their lending policies mainly through their impact on risk perceptions, risk tolerance and the cost of cleaning up the balance sheet.

Finally, with regard to the factors that are significant in determining banks’ lending margins, competition and profitability targets were reported as the most significant factors across all categories of loans over the past six months, and these factors also increased most in significance between the beginning of 2014 and the end of 2017.

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