Publication - The euro area bank lending survey - by Petra Köhler-Ulbrich, Hannah S. Hempell,
Non-technical summary
Copyright: European Central Bank
Directorate General Communications
Sonnemannstrasse 20, 60314 Frankfurt am Main, Germany
Tel.: +49 69 1344 7455, E-mail: media@ecb.europa.eu
Website: www.ecb.europa.eu
Since its introduction in 2003, the euro area bank lending survey (BLS) has become an important tool in the reporting on and the analysis of bank lending conditions in the euro area and across euro area countries, providing otherwise unobservable qualitative information on bank loan demand and supply from/to euro area enterprises and households.
In particular since the start of the financial crisis, the BLS has been used to gather additional information on the impact of the crisis on bank funding and bank lending conditions. It has received growing attention in this context as regards the monitoring of bank lending conditions in the euro area and across member countries for the purpose of monetary policy. The BLS also became increasingly useful as an analytical tool for investigating bank lending conditions in the euro area and at the national level to analyse financial fragmentation. Against this background, the main objectives of this paper are threefold:
First, the conceptual design of the BLS and its development over time are described in order to reflect the increasing role which the BLS has assumed over time and especially during the financial crisis. This includes in particular the use of ad hoc questions in the BLS since 2006 and the introduction of an enhanced BLS questionnaire and compilation guide in April 2015, after taking stock of the interpretation of the BLS across reporting banks during 2013-14.
Second, the results of the BLS, for both the standard questions and the ad hoc questions, are analysed and combined with other macroeconomic and financial variables. Thereby, the results of the BLS are cross-checked and put into a wider economic perspective. In addition to the analysis based on data for the euro area as a whole, evidence is also provided on the developments across the largest four euro area economies. Analyses based on individual bank replies complement further the picture by providing more granular evidence on developments.
Third, an overview of the use of the euro area BLS for academic research investigating bank lending conditions in the euro area is presented. The analysis of euro area bank lending conditions for enterprises and households between 2003 and 2016 shows that bank lending conditions reflected periods of strong economic growth, deep recession during the financial crisis and a very gradual recovery in the aftermath of the crisis, supported by the ECB’s standard and non-standard monetary policy measures. Banks responded to the changes in the economic environment by adjusting their credit standards, i.e. their loan approval criteria, and their credit terms and conditions at which they are willing to provide new loans. The importance of the individual factors contributing to changes in bank lending conditions changed during the financial crisis.
While risk perceptions regarding the economic situation and borrowers’ creditworthiness as well as banks’ cost of funds and balance sheet constraints played a dominant role in tightening periods, competition played a more important role in easing periods. In addition, the importance of banks’ cost of funds and balance sheet constraints increased following the financial crisis until the end of 2011, reflecting banks’ funding stress. Turning to loan demand, loan demand by enterprises depends on a variety of factors. Financing needs for fixed investment as well as for inventories and working capital are the most important factors for firms’ loan demand.
Demand for mergers and acquisitions (M&As) contributed considerably to loan demand especially in periods of favourable financing conditions like before the financial crisis and in the most recent past. Financing needs of households mainly reflected favourable housing market developments and positive consumer confidence, as well as, with respect to consumption financing, spending on durable consumer goods, such as cars or furniture. For all loan categories, changes in the general level of interest rates have an impact on loan demand. In this respect, the current low interest rate environment fuels loan demand. Banks’ qualitative answers to the BLS are closely related to quantitative data on the macroeconomic and financial side of the economy as well as to qualitative evidence from other European surveys. Specifically, changes in credit standards, terms and conditions and loan demand as well as contributing factors display a close connection to real economic growth, bank loan growth, changes in industrial and consumer confidence, firms’ profitability, borrowers’ balance sheet situation, M&A activity and the unemployment rate. In addition, developments in bank lending conditions are related to developments in house prices and changes in bank lending spreads.
This confirms that bank lending conditions, as collected in the context of the BLS, are well anchored in actual macroeconomic and financial developments and contribute to explaining loan developments with a view to disentangling loan supply and demand factors. This is of particular interest in the analysis of monetary policy transmission and the design of adequate monetary policy actions. In part, BLS indicators lead the developments in other indicators, such as bank lending and real GDP growth, thereby providing particularly useful information for forward-looking monetary policy.
Directorate General Communications
Sonnemannstrasse 20, 60314 Frankfurt am Main, Germany
Tel.: +49 69 1344 7455, E-mail: media@ecb.europa.eu
Website: www.ecb.europa.eu
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