been reached.
Banks reported a smaller contribution to the overall net tightening from risks related to expectations about general economic activity, the industry-specific outlook and collateral. Bank-specific factors,however, provided a more ambiguous picture. On the one hand, banks’ access to market financing and liquidity position contributed to an easing of credit standards in the fourth quarter of 2009, albeit slightly
less so than in the previous survey round. On the other hand, costs related to banks’ capital position contributed to an increase in the tightening of credit standards.
The net tightening of credit standards on loans to households for house purchase and on consumer credit also decreased, but at a much quicker pace for housing loans (3% in the fourth quarter of 2009 compared with 14% in the third quarter) than for consumer credit (10% compared with 13%).
Net demand for loans to NFCs remained negative (at -8%) in the last quarter of 2009, albeit much less so than in the third quarter (-20%). Weakness in fixed investment and, to a lesser extent, scarce M&A activity explain a large part of the depressed demand for corporate loans. Another relevant factor was the greater use of alternative sources of financing (such as debt securities issuance). These factors were only
partly counterbalanced by a record high positive impact of debt restructuring on the demand for loans.
The net percentage of banks reporting an increase in households’ demand for housing loans continued to increase for the third quarter in a row, mostly explained by the contribution of improving housing market prospects. At the same time, developments in demand for consumer loans were more sluggish.
Banks generally reported that their access to wholesale funding had eased in the fourth quarter of 2009, apart from their ability to transfer credit risk off their balance sheets, which deteriorated further. When asked to assess net credit standards for 2010, euro area banks did not foresee any easing in the coming months, except on housing loans.
Developments in credit standards and net demand for loans in the euro area
Enterprises
Credit standards. In the fourth quarter of 2009 the net percentage of banks reporting a tightening of credit standards on loans and credit lines to enterprises continued to decline, to 3% from 8% in the third quarter of 2009 and 21% in the second quarter. The pace of decline in net tightening reported in the current survey round was thus noticeably slower than in recent rounds. The decline in net tightening registered in the last quarter of 2009 was also somewhat smaller than what had been expected by banks in the previous survey (in the third quarter of 2009 banks had expected the net tightening to reach zero). Finally, in the last quarter of 2009, developments in net tightening of credit standards were broadly similar for both large and small firms. Regarding loan maturities, the decline in net tightening of credit standards was somewhat stronger for long-term loans than for short-term loans.
Looking at the factors contributing to the overall tightening, banks reported a lower contribution of the risks related to expectations about general economic activity, the industry-specific outlook and collateral. All these factors, though still contributing to a net tightening of credit standards, continued to diminish in importance in the last quarter of 2009. Bank-specific factors, however, provided a more ambiguous picture. On the one hand, banks’ access to market financing (-2%) and liquidity position (-8%) contributed to an easing of credit standards in the fourth quarter of 2009, albeit slightly less so than in the previous survey round. On the other hand, costs related to banks’ capital position (9%)contributed to an increase in the tightening of credit standards (compared with 7% in the third quarter of 2009).
The net tightening of the price and non-price terms and conditions on loans to enterprises also continued to decline in the fourth quarter of 2009. This decline was clear and broadly based across all categories of terms and conditions, with, in particular, a substantial further reduction in the net increase of margins on average loans, which stood at 6% in the last quarter of 2009, compared with 13% in the previous survey round. For the first time since mid-2008 the net increase of margins on average loans appeared broadly similar for both large and smaller firms. Up until the third quarter of 2009 it had remained slightly higher for large firms, reflecting somewhat tighter terms and conditions for larger firms throughout the financial turmoil. Looking forward, euro area banks expect some further tightening of credit standards on loans to enterprises in the first quarter of 2010, with an expected net tightening potentially worsening slightly to 4%. This is in contrast with the expectation of an easing of credit standards reported in the previous survey round.
Loan demand. “Net” demand for loans from enterprises remained negative (at -8%), albeit much less so than in the third quarter of 2009 (-20%). Throughout most of 2009 net demand for loans from SMEs (at -4% in the fourth quarter of 2009 compared with -40% in the first quarter) appeared to be heading towards positive territory faster than that from large firms (-18% compared with (-38%).
Weakness in fixed investment (-34% in the fourth quarter of 2009 compared with -52% in the third quarter) and, to a lesser extent, scarce M&A activity (-24% compared with -33%) are seen as the main factors contributing to the negative net loan demand, although both contributions became less negative throughout 2009. Another relevant factor to explain the negative net loan demand from euro area firms is the greater use of alternative sources of financing, such as equity issuance (-5%) and, in particular, debt securities issuance (-13%), in a context of favourable market conditions. Factors dampening demand for loans were only partly counterbalanced by a record high positive impact of debt restructuring on firms’ demand for loans (hovering around +47% throughout 2009, compared with a longterm average of +21%).
Looking forward, banks appear more optimistic than in the previous survey and expect net loan demand from enterprises to fully recover and turn positive in the first quarter of 2010 (+15%), somewhat more for SMEs (+22% expected in the first quarter of 2010) than for large firms (+8%).
As regards expectations for the first quarter of 2010, net demand for loans by enterprises is expected to be slightly positive (1%), unchanged in relation to the expectation in the previous quarter.
Households
Loans to households for house purchase
Credit standards. The net percentage of banks reporting a tightening of credit standards on loans to households for house purchase continued to decline at a steady pace, reaching 3% in the last quarter of 2009 (compared with 14% in the third quarter and 22% in the second). This was more or less in line with expectations from the previous survey. This further decline was mainly driven by a lower perception of risk surrounding general economic activity (13% compared with 19% in the third quarter of 2009) and, in particular, housing market prospects (8% compared with 14%), although both factors still contributed to a tightening of housing credit standards. Unlike for corporate loans, banks’cost of funds and balance sheet constraints, seen as pure supply-side constraints on the provision of loans, no longer contributed to a tightening of credit standards at the end of 2009 and, for the first time since mid-2007, remained neutral. Finally, competition between banks contributed to an easing of credit standards on housing loans (-3%).
Regarding terms and conditions on loans for house purchase, the net increase of average margins was further reduced in the fourth quarter (to an almost neutral 1%, after 6% in the previous quarter). While still substantial, the net increase in margins on riskier loans and the loan-to-value ratio declined further, reflecting a general decline in the risk aversion of banks towards housing loans. Replies on collateral requirements, however, remained broadly unchanged compared with the previous survey round, with a net 6% of banks reporting higher collateral requirements. Similarly, terms and conditions related to maturities of loans and non-interest charges were hardly changed in the fourth quarter of 2009.
Looking forward, banks expect a further mild decrease in net tightening of credit standards on loans for house purchase in the first quarter of 2010 (to 2% from 5% in the fourth quarter of 2009).
Loan demand. The net percentage of banks reporting an increase in demand for housing loans continued to rise for the third quarter in a row to 16% in the fourth quarter of 2009 (compared with 10% in the third quarter and 4% in the second), which is more than expected in the last survey round. This rising demand is mostly explained by the contribution of housing market prospects, which turned positive (from -8% in the third quarter of 2009 to +8% in the fourth) for the first time since 2006. Consumer confidence, whilst still dampening demand for housing loans, improved substantially (from -16% in the third quarter of 2009 to -2% in the fourth).
Looking forward, banks expect the net demand for housing loans to continue to increase (to 22%) in the first quarter of 2010.
Consumer credit and other lending to households
Credit standards. In the fourth quarter of 2009 the net percentage of banks reporting a tightening of credit standards for consumer credit and other lending to households decreased further (to 10% compared with 13% in the third quarter and 21% in the second). This was broadly in line with banks’expectations in the previous survey. However, the decrease in net tightening for this segment of the loan market appears to be less pronounced than for other types of loans. As in the previous round, the overall net tightening recorded in the fourth quarter of 2009 pointed more to risks related to creditworthiness (17%) and collateral (7%) than to bank-specific issues related to cost of funds or balance sheet constraints (4%).
Looking forward, banks appear to have reassessed developments in credit standards on consumer loans and, in contrast with the previous survey round, they no longer expect net tightening to come to a halt, but rather to continue to decline only mildly compared with the previous quarter (i.e. to an expected 9% in the first quarter of 2010).
Loan demand. Developments in demand for consumer loans were also more sluggish in the last quarter of 2009. The net demand for consumer credit continued to decline (-10% in the fourth quarter of 2009 compared with -9% in the third quarter and -26% in the second). This is at odds with banks’ expectation that net demand for loans would reach zero in the last quarter of 2009. According to banks, although consumer confidence was reported to have had less of a dampening effect in the last quarter of 2009 (-14% compared with -20% in the third quarter), there was no visible improvement in spending on durable goods (-7% in the fourth quarter compared with -6% in the third) and household savings (-6% compared
with -5%).
Looking ahead, banks expect the net demand for loans to register some mild improvement in the first quarter of 2010, but to remain negative at -4%.
