ECB published results of the quarterly lending survey conducted on 143 banks in the euro area. In addition to results for the euro area as a whole, this report also contains results for the four largest euro area countries, namely Germany, France, Italy and Spain. The results show that credit standards—that is, banks’ internal guidelines or loan approval criteria—tightened across all loan categories in the third quarter of 2020. The loan categories include loans to enterprises, loans to households for house purchase, and consumer credit and other lending to households.
The survey revealed that credit standards for loans to households continued to tighten, with a net percentage of 20% for loans to households for house purchase and of 9% for consumer credit and other lending to households. Banks referred to the deterioration of the general economic outlook, increased credit risk of borrowers, and a lower risk tolerance as relevant factors for the tightening of their credit standards for loans to firms and households. Banks’ overall terms and conditions tightened in the third quarter of 2020 for new loans to enterprises, on account of wider loan margins, especially for riskier loans, and collateral requirements.
For loans to households for house purchase, banks’ overall terms and conditions also tightened in the third quarter of 2020. Regarding euro area banks’ access to retail and wholesale funding, banks reported in net terms that access improved in the third quarter of 2020. This has been supported by the monetary policy measures of ECB. The asset purchase program of ECB, pandemic emergency purchase program, and the third series of targeted longer-term refinancing (TLTRO III) operations have had a positive impact on banks’ liquidity positions and market financing conditions. Among the largest euro area countries, credit standards on loans to enterprises tightened in Germany, Spain and France, while they remained unchanged in Italy in the third quarter of 2020.
Looking forward, for the fourth quarter of 2020, banks expect credit standards to continue to tighten for firms, reflecting concerns around the economic recovery as some sectors remain vulnerable, as well as uncertainties around the prolongation of fiscal support measures. The net tightening of credit standards on loans to households for house purchases is also expected to continue in the fourth quarter of 2020. In the fourth quarter of 2020, banks expect that net demand for loans to firms will rebound. Demand for housing loans is expected to fall, while demand for consumer credit is expected by banks to increase in the fourth quarter of 2020.
Keywords: Europe EU Banking Bank Lending Survey COVID-19 Credit Risk Basel Credit Terms and Conditions ECB
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