ECB’s Bank Lending Survey

Signs of a sustained turnaround in core inflation have somewhat weakened”. That is what Draghi, the ECB President, told to the European Parliament few days ago. The European Central Bank is ready to boost the recovery of the Eurozone, re-examining all possible measurements and even, if necessary, expanding the QE program. In the last BLS, the bank lending survey in the euro area, the impacts of the ECB’s expanded asset purchase program during the third quarter of 2015 and the trend of loans to enterprises and households have been analyzed. Starting form credit standards on loans to enterprises, banks announced a further net easing in the third quarter of 2015 (4%), in particular on loans to SMEs. Competition between banks and the effect of risk perception were the main factors that contributed to an easing in credit standards in Italy, France and Netherlands, except from Germany where the situation was almost unchanged; moreover a continuous improvement in financing conditions for loans has been recorded. The low level of interest rates and financing needs for debt refinancing, renegotiation and M&A activities strongly contributed to the increase in net demand for loans in this quarter, except in Spain where demand remained unaltered; on the other hand the availability of alternative finance contributed negatively in Italy, Spain and Germany. The demand for loans is expected to grow in next quarter and the net share of rejected applications for loans to enterprises in the euro area decreased in this quarter (-4%), mainly in Italy and Germany. Proceeding with the analysis on the credit standards for loans to households, banks reported a tightening in net terms (5% from -9% in the previous quarter). The increase in net demand for housing loans, not considering the decrease in France, was a consequence of both the low level of interest rates and prospects of the housing market; consumer confidence was also one of the main factors leading this trend in the euro area. Banks’ risk tolerance provided a tightening in credit standards in Germany and an easing in Spain; competition had a steady impact in Italy, France and Netherlands (the latter also shocked by a change in internal regulation). Credit standards on consumer credit and other lending to households continued to ease (-3%). The rejection rate for consumer credit increased, while this percentage for mortgage loans, in net percentage terms, decreased to -3%. The expectation for the fourth quarter of 2015 reveals an additional net easing in credit standards on loans to enterprises (-6%), an unchanged situation for housing loans and a modest net easing for consumer credit (-2%).

Source: ECB database

The last quarter study also focused on the impact of ECB’s QE programme on banks; in details, the survey analysed indirect effects on their asset allocation and financial situation. Considering changes in total assets, 10% of banks have shown an increase in total AuM over the past six months and they have forecasted a continuity of this trend. Analysing the liquidity position of banks in the euro area, 23% of them revealed an improvement of the position over last six months (20% data reported in the April survey); also examining banks’ market financing conditions there was a continuous renovation, approaching a new financing through covered bonds and equity issuance. The survey disclosed even that a modest percentage of banks had a positive effect on their leverage and capital ratio. Regarding the impact of the asset purchase programme on banks’ profitability, a generally negative impact was registered due to the low interest rates and the flattening of the yield curve. Banks estimate a more slight decrease in the profitability over next six months.

Source: ECB Database

The effects of the ECB’s expansionary monetary policy appear to give a fundamental support to lending in the euro area: banks have used the additional liquidity, coming from sales and marketable assets, also for granting loans to households (36% of the euro area banks) and enterprises (39%). These percentages are expected to grow in next semester.

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