ECB bank lending survey shows credit standards improving

Credit standards for Eurozone companies eased more than expected in the third quarter as banks made use of the European Central Bank’s asset-purchase programme to grants loans, according to the ECB’s latest bank lending survey.

The survey found that banks lowered their credit standards as they became increasingly competitive, and the net percentage of banks reporting an easing of credit standards on loans to firms in the third quarter was -4% from -3% in the second quarter.

“When negotiating on the conditions for new loans, banks continued to ease their terms and conditions on loans across all categories, mainly driven by a further narrowing of margins on average loans, i.e. there was a smaller margin or spread over market rates. As with credit standards, the main factor contributing to the easing in terms and conditions was competition,” the ECB said.

Banks reported a net tightening of credit standards on loans to households for house purchase, broadly in line with the expected tightening of standards in the previous survey.

The ECB also found that net demand for loans increased, mainly due to the general level of interest rates, as well as increased needs for fixed investments.

The survey showed that banks used the additional liquidity from the ECB’s expanded asset purchase programme to grant loans.

“The APP had a net easing impact on credit standards and particularly on credit terms and conditions. The easing impact was greatest for loans to enterprises,” it said.

Societe Generale said the lending survey supports its positive stance on credit recovery in Europe.

“Loan growth expectations were robust across all Eurozone countries, particularly for the corporate sector. Once again, the quality of the overall credit demand was underlined by strong fixed investment demand,” it said.

In addition, it said the ECB’s asset purchase programme remains helpful for banks, which reported an increase in their lending activity over the past six month due to the liquidity surplus granted by the ECB.

“The survey also pointed out some positive indirect impacts of the ECB policies, such as an easing effect on both loan standards and terms and conditions – greatest for corporate credit – and a positive effect on capital gains and loan losses.”