Credit standards. Credit standards for loans or credit lines to enterprises have eased somewhat in net terms in the first quarter of 2007 (-4% compared with 0% in the previous quarter). This follows a period over the past few quarters when standards remained basically unchanged or were slightly eased. Competition from other banks continued to be an important factor contributing towards net easing of credit standards, albeit less than in previous quarters. Also, more favourable expectations regarding general economic activity weighted, for the third time in a row, towards net easing. The industry or firm-specific outlook for the first time no longer contributed to net tightening as had been the case in previous years.
Regarding the conditions and terms of credit, banks eased credit standards not only via implementing narrower margins on average loans (-25% in April 2007, from -17% in the previous cycle), but also through a variety of other means including a lengthening of the maturity of loans or credit lines and an increase in the size of the loans or credit lines (although less than in the previous cycle). In contrast, higher margins on riskier loans contributed to a net tightening in credit standards but slightly less than in the previous quarter (12%, from 13% in the previous cycle).
The net easing of credit standards applied mainly to large enterprises (-7%, from 2% in the previous quarter). The credit standards applied to small and medium-sized enterprises remained basically unchanged in the first quarter of 2007 (at 0%), following a series of net easing in 2006. As regards loan maturities, the net easing was more pronounced in comparison with the previous quarter for long-term loans (-10%, from 0% in the previous survey) than for short-term loans (-4%, from 0% in the previous survey).
Loan demand. In line with the six previous quarters, in the first quarter of 2007, net demand for loans by enterprises was significantly positive, although at a somewhat lower level than in the previous survey round (16% in April 2007 compared with 23% in the previous round). The factors behind the persistent high positive net demand continued to be both of a non-financial and financial nature, in particular fixed investment, inventories and working capital, as well as mergers and acquisitions (M&A) and corporate restructuring. The use of alternative financing coming from internal sources (i.e. higher profits) contributed to moderating net loan demand, albeit less than during the previous round.
In terms of borrower size, net loan demand from small and medium-sized enterprises continued to be stronger than for large enterprises (16% and 12% respectively), although the difference was less pronounced than during previous quarters. Net demand was positive across the maturity spectrum, although with a continued downward tendency for long-term loans.
Expectations. Looking ahead to the second quarter of 2007, banks expect a net easing of credit standards applied to the approval of loans or credit lines to enterprises, in particular for short-term loans. Banks also expect strong corporate net demand across all firm sizes and loan maturities.
Loans to households for house purchase
Credit standards. In the first quarter of 2007, banks reported a slight net easing of credit standards for loans to households for house purchase, broadly at the same level as in the previous quarter (-5% in April 2007, from -6% in the previous survey round). While the main factor behind the net easing continued to be competition, in particular from other banks, housing market prospects contributed more towards a tightening relative to the previous quarter.
The net easing for loans for house purchase was mainly implemented via reducing the margins on average loans, lengthening the loan maturity and reducing non-interest rate charges. At the same time, margins on riskier loans continued to contribute to a net tightening, but slightly less than in most previous quarters (3% in April 2007, from 4% in the previous cycle).
Loan demand. The net demand for housing loans to households fell significantly in the first quarter of 2007 (-28% in April 2007, from -10% in the previous round). This decrease was for the most part determined by a sharp deterioration in the assessment of housing market prospects. Consumer confidence also contributed towards a negative net loan demand, unlike in the previous survey rounds.
Expectations. For the second quarter of 2007, respondent banks expect a slight net tightening of credit standards for loans to households for house purchase. Despite this, banks expect net demand to remain basically unchanged over the same period.
Consumer credit and other lending to households
Credit standards. In the first quarter of 2007, banks reported a slight net easing of the credit standards applied to the approval of consumer credit and other lending to households, broadly at the same level as in the previous quarter (-6% in the April 2007 round, from -8% in the previous round). Among the factors contributing to the slight net easing in credit standards were competitive pressures in particular from other banks, as well as favourable expectations regarding general economic activity. Banks cited concerns regarding the creditworthiness of consumers as the main factor contributing towards tighter consumer credit standards, although less than in the previous quarter.
The net easing was mainly implemented by acting on prices. Margins on average loans contributed significantly to the net easing, although mostly reversing a movement in the opposite direction in the January 2007 survey round. The lengthening of loan maturity also contributed to net easing. At the same time, margins on riskier loans contributed slightly more to a net tightening than in the previous quarter (9% in the April 2007 round, from 4% in the previous cycle), although movements over the past few quarters have been somewhat volatile. The other conditions and terms remained basically unchanged in net terms compared to the previous quarter.
Loan demand. Banks reported that net demand for consumer credit and other lending to households remained positive in the first quarter of 2007, at broadly the same level as in the previous quarter (15% in the April 2007 round compared with 13% in the previous round). The main drivers behind the positive net demand for consumer credit continued to be spending on durable consumer goods and, albeit less than during previous quarters, consumer confidence. The impact of household savings remained very low.
Expectations. For the second quarter of 2007, responding banks expect credit standards for consumer credit and other lending to households to remain basically unchanged. Respondent banks also expect the net demand for loans to households for consumer credit and other lending to remain significantly positive.
