Eurozone October Bank Lending Survey Results
The Eurozone Bank Lending Survey (BLS) has been released for the third quarter of the financial year. The report focuses on lending conditions in the Euro area, and covers issues around the supply and demand of loans, from the consumer need for loans across different categories, to the credit standards and terms of banks.
Eurosystem runs the quarterly bank lending survey to gain a greater understanding of the supply and demand for loans
The Eurozone Bank Lending Survey (BLS) has been released for the third quarter of the financial year. The report focuses on lending conditions in the Euro area, and covers issues around the supply and demand of loans, from the consumer need for loans across different categories, to the credit standards and terms of banks.
The bank lending survey is conducted four times a year. It was developed by Eurosystem in order to improve understanding of bank lending, and uses information from 147 surveyed banks. The survey was conducted from 14th September to 1st October, and has now been published by the European Central Bank.
The October survey reveals several changes compared to the previous quarter. Besides highlighting the relative success and shortcomings of the ECB's asset purchase scheme, the survey shows that demand for loans across all categories has continued to increase, while bank policies and credit standards have eased, especially when it comes to business lending.
Easing Of Credit Standards
There has been an easing of credit standards when it comes to banks' lending to enterprises. In other words, banks have reduced the criteria for loan approval and have slackened internal guidelines. The net percentage of credit easing for this category is -6%, which follows on from a -3% easing in the second quarter. The 3rd quarter credit easing surpassed expectations from when banks were asked in previous surveys.
Credit standards for house purchases also saw a slight easing of -2% in the October survey, though this declined from the more dramatic -8% easing of the 2nd quarter.
When it came to consumer credit and other household lending, banks' credit standards remained largely unchanged, with a 1% tightening, following on from -3% last quarter.
Overall terms and conditions for loans, the actual terms agreed in the contract, eased for enterprise lending, and remained largely unchanged for housing loans and consumer credit.
One of the main factors for the general easing of credit standards was competitive pressure. Banks compete with each other, but it's also possible to get a loan with bad credit from short-term lenders, as well as looking elsewhere for other lending options. Banks have to lower their standards in order to compete.
It is predicted that a net easing of credit standards will continue in the 4th quarter for housing loans and consumer credit, while enterprise standards will remain unchanged.
Net Demand Increases
The net demand for loans has increased across all loan categories. Low interest rates are a primary factor for this, no matter the loan – arguably not so great for savers, but perfect for lenders.
Enterprises are also dealing with factors such as low working capital and acquisition activities. The demand for housing loans is also due to favourable housing market conditions, while consumer confidence is at a high for both housing and consumer credit.
The report provides unique insight into the bank lending market in the Eurozone. It shows that demand is increasing, while lending conditions are becoming more favourable. There are also alternatives to bank loans available, and banks are looking to compete by reducing credit standards. Meanwhile, consumer confidence is high and interest rates are low.