ECB published results of the lending survey conducted on 144 banks in the euro area between June 5 and 23, 2020. The survey is conducted four times a year and is intended to improve an understanding of lending behavior of banks in the euro area. The results of the July 2020 survey relate to changes observed during the second quarter of 2020 and expectations for the third quarter of 2020. The survey results show a continued upward impact of the COVID-19 pandemic on firms’ loan demand, largely driven by emergency liquidity needs. Banks also reported broadly unchanged credit standards on loans or credit lines to firms in the second quarter of 2020.
According to banks, fiscal and monetary policy measures played a significant role in maintaining favorable credit standards for loans to firms. Banks expect credit standards for enterprises to tighten considerably in the third quarter, which is reported to be related to the expected end of state guarantee schemes for loans in some large euro area countries. Firms’ demand for loans or drawing of credit lines surged further in the second quarter of 2020. The increased demand for working capital connected to emergency liquidity needs and possibly precautionary build-up of liquidity buffers more than offset the negative contribution of demand for fixed investment. Banks expect the net increase in firms’ demand for loans to be lower in the third quarter. In addition to results for the entire euro area, the report also presents results for the four largest euro area countries—Germany, France, Italy, and Spain. Credit standards on loans to enterprises tightened in Germany in the second quarter of 2020, while an easing was observed in Spain, Italy, and France. Banks in Spain, Italy, and France reported that government loan guarantees played a significant role in maintaining favorable credit standards for loans to firms, while banks in Germany mentioned that firms’ demand for loans guaranteed by governments was overall lower than expected.
Against the COVID-19 backdrop, credit standards for housing loans and consumer credit tightened considerably in the second quarter, related mostly to the deterioration of the economic outlook and worsened borrowers’ creditworthiness. Net demand for housing loans and consumer credit decreased considerably in the second quarter, on account of precautionary savings and low spending possibilities during the strict lockdown period, coupled with uncertainties in the employment situation. For housing loans and consumer credit, credit standards tightened in Germany, France, and Spain, but remained unchanged in Italy. Banks expect a continued net tightening of credit standards and a rebound in household loan demand in the third quarter of 2020. Regarding the impact of non-performing loan (NPL) ratios, banks reported a net tightening impact of NPL ratios on their credit standards and on terms and conditions for loans across all loan categories in the first half of 2020. Over the next six months, they expect an increased net tightening impact for loans to enterprises, housing loans, and consumer credit. Risk perceptions and risk aversion were the main drivers of the tightening impact of NPL ratios.
Keywords: Europe, EU, Banking, COVID-19, Bank Lending Survey, Loan Guarantee, Credit Risk, NPLs, Basel, ECB
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