According to the April 2021 Euro Area Bank Lending Survey (BLS), credit standards, i.e. internal bank guidelines or loan approval criteria, were moderately tightened for loans or credit lines to Business (net percentage of banks situated at 7%) in the first quarter of 2021. Credit standards relaxed slightly in net terms for loans to households for the purchase of housing (-2% net percentage) and they narrowed even more moderately in net terms for consumer credit and other loans to households (5% net percentage). Banks primarily referred to risk perceptions related to borrowers’ creditworthiness and lower risk tolerance as factors that have a stricter impact on their credit standards. On the contrary, competitive pressure contributed mainly to a loosening of credit standards. In the second quarter of 2021, banks expect credit standards to tighten for loans to businesses and households.
The general terms and conditions of the banks, that is, the actual terms and conditions agreed in the loan contracts, were unchanged for business loans and generally relaxed for housing loans in the first quarter of 2021. In both cases, average loan spreads narrowed while banks reported wider spreads for riskier loans on a net basis.
Banks generally reported a further decline in demand for business loans or from the provision of credit lines in the first quarter of 2021, that is, a higher percentage of banks indicated a decrease rather than an increase in the demand for loans from companies. The financing needs of fixed investment continued to hold back the demand for loans, as companies, especially in the sectors most affected by the pandemic, tended to postpone investment. Furthermore, companies, in general, did not demand additional financing for working capital, which reflects the availability of liquidity buffers and direct liquidity support from the government, especially for small and medium-sized companies. Banks also reported a net decrease in demand for home loans in the first quarter of 2021. While consumer confidence dampened demand for home loans, demand continued to be supported by overall low interest rates and, to a lesser extent, the outlook for the housing market. For consumer credit and other loans to households, a higher net percentage of banks reported a drop in demand, mainly driven by lower consumer confidence and lower spending on durable goods. In the second quarter of 2021, banks expect net demand for loans to businesses and households to increase.
The access of euro area banks to retail and wholesale financing continued to improve in the first quarter of 2021, according to the banks surveyed. The BLS also asked banks to report on the impact of the ECB’s monetary policy measures on bank lending. The The ECB’s Asset Purchase Program (APP), the Pandemic Emergency Purchase Program (PEPP) and the third series of longer-term specific refinancing operations (TLTRO III) had a positive impact on banks’ liquidity positions and market financing conditions. These measures, as well as the negative rate of the ECB’s deposit facility, had a moderating impact on bank loan conditions and a positive impact on loan volumes, mainly for corporate loans. TLTRO III, in particular, has strongly supported bank loans for the past six months. At the same time, banks indicated a negative impact of the ECB’s asset purchases and the negative rate of the deposit facility on their profitability through a negative impact on their net interest income. This was mitigated by the ECB’s two-tier system to compensate for excess liquidity.
The Euro area bank loan survey, which is carried out four times a year, was developed by the Eurosystem to better understand the behavior of bank loans in the euro area. Results reported in the April 2021 survey relate to changes observed in the first quarter of 2021 and expected changes in the second quarter of 2021, unless otherwise noted. The The April 2021 survey round was conducted between March 11 and March 26, 2021. In this round, a total of 143 banks were surveyed, with a response rate of 100%.
.
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
