Europæiske banker strammer op på kreditstandarder

Euro Macro: Banks have stopped easing credit standards on loans to companies – The ECB published its Bank Lending Survey (BLS) for the final quarter of 2018 yesterday. It shows that banks kept their lending standards on loans to non-financial companies broadly unchanged, after they had eased them for the previous seven consecutive quarters in a row.

The outcome for 2018Q4 was in line with what banks had expected the quarter before. The forward looking part of the most recent survey reveals that banks plan to tighten lending standards in 2019Q1. As the main reasons for their less generous behaviour in 2018Q4, banks report less favourable perception of risk as well as lower risk tolerance.

On top of the deterioration in the change of lending standards, banks also rejected more loan applications from companies in the final quarter of last year (the balance between banks reporting an increase in the share of loan rejections and a decrease rose to 5% in Q4 from 1% in Q3).

Looking at the largest five individual eurozone countries, Italy was the only one where banks on balance reported a tightening of credit standards on loans to enterprises in Q4 (balance +10, up from -10 in 2018Q3). Moreover, the details of the report shows that banks in Italy and Spain reported that cost of funds and balance sheet constraints had had a significant tightening impact on overall terms and conditions on loans to enterprises.

Besides factors related to the supply of bank loans, the BLS also measures demand for loans and raises some sector-specific ad hoc questions. On balance, banks still report rising demand for loans by companies over the last three months, although to a lesser extent than in Q3 (balance of higher demand and lower demand slipped from +12 to +9).

They expect a further softening of demand in 2019 Q1. Indeed, the expectations balance declined to +3 last quarter (from +11 previously), which was the lowest level since 2013Q4. Over the past 3 months, the positive contribution to loan demand stemming from fixed investment remained unchanged in 2018Q4, whereas demand stemming from inventories and working capital and the general level of interest rates declined somewhat.

Regarding a number of bank-specific factors the ad hoc questions in the BLS show that banks, on balance, reported that due to the volatility in financial markets their access to wholesale funding had deteriorated for debt securities issuance as well as for securitisation in Q4.

Also they reported that supervisory or regulatory action had had a net tightening impact on their credit standards in the second half of 2018. Finally, the level of banks’ NPL ratios, on balance, had led to a tightening of their lending policies for enterprises in the second half of 2018, mainly through their access to market financing.

Overall, the BLS shows that the banking sector is starting to feel the impact of slower economic growth and market volatility, with the growth in demand for loans slowing, while banks are no longer easing credit conditions.