The euro space financial institution lending survey

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The outcomes reported within the April 2023 financial institution lending survey (BLS) relate to modifications noticed throughout the first quarter of 2023 and expectations for the second quarter of 2023. The survey was performed between 22 March and 6 April 2023. In the primary quarter of 2023, the scale of the pattern was elevated to 158 banks, reflecting primarily the enlargement of the euro space to incorporate Croatia on 1 January 2023. The response charge was 100%. In addition to outcomes for the euro space as an entire, this report additionally incorporates outcomes for the 4 largest euro space nations.^[1]

Quite a few advert hoc questions have been included within the April 2023 survey. They tackle the impression of the scenario in monetary markets on banks’ access to retail and wholesale funding, the impression of the ECB’s financial coverage asset portfolio and TLTRO III on banks and their lending insurance policies, and the impression of ECB key rate of interest choices on financial institution profitability.

In the April 2023 BLS, euro space banks indicated that their credit score requirements for loans or credit score strains to enterprises tightened additional considerably within the first quarter of 2023. From a historic perspective, the tempo of web tightening in credit score requirements remained on the highest stage because the euro space sovereign debt disaster in 2011. The tightening was stronger than banks had anticipated within the earlier quarter and factors to a persistent weakening of mortgage dynamics. Risks associated to the financial outlook and firm-specific scenario remained the principle driver of the tightening of credit score requirements, whereas banks’ decrease threat tolerance additionally contributed. The tightening impression of banks’ cost of funds and steadiness sheet scenario on credit score requirements for loans to companies remained contained and broadly unchanged in contrast with the earlier quarter. In the second quarter of 2023, euro space banks anticipate an extra, although extra reasonable tightening for loans to companies.

Banks additionally reported an extra substantial web tightening of credit score requirements for housing loans within the first quarter of 2023, whereas the online tightening grew to become much less pronounced for shopper credit score. The web tightening of credit score requirements on housing loans was primarily owing to banks’ greater threat perceptions and decrease threat tolerance, whereas the tightening contribution of banks’ cost of funds and steadiness sheet constraints remained contained. In the second quarter of 2023, euro space banks anticipate an extra, although extra reasonable, web tightening for loans to households for home buy and an extra web tightening at the same tempo as within the first quarter for shopper credit score.

Firms’ web demand for loans fell strongly within the first quarter of 2023. The decline in web demand was stronger than anticipated by banks within the earlier quarter and the strongest because the world monetary disaster. The common stage of rates of interest was reported as the principle driver of decreased mortgage demand, in an surroundings of financial coverage tightening. Fixed funding additionally had a powerful dampening impression whereas the impression of inventories and dealing capital turned broadly impartial, after having beforehand had a optimistic impression on mortgage demand. In the second quarter of 2023, banks anticipate an extra, albeit smaller web decline in demand for loans to companies.

The web lower in housing mortgage demand remained robust and near the sharp web lower within the fourth quarter of 2022, which was the very best because the begin of the survey in 2003. It was pushed by greater rates of interest, weakening housing market prospects and low shopper confidence. By distinction, the online lower in demand for shopper credit score grew to become smaller. In the second quarter of 2023, banks anticipate a markedly much less pronounced lower in housing mortgage demand and a considerably smaller web lower in demand for shopper credit score than within the first quarter.

In extra element, euro space banks tightened additional considerably their credit score requirements (i.e. banks’ inner pointers or mortgage approval standards) for loans or credit score strains to enterprises within the first quarter of 2023 (web proportion of banks at 27%, after 27% within the earlier quarter; see Overview desk), i.e. the proportion of banks reporting a tightening of credit score requirements was considerably bigger than the proportion of banks reporting an easing. From a historic perspective, the tempo of web tightening in credit score requirements remained on the highest stage because the euro space sovereign debt disaster in 2011. The tightening was stronger than banks had anticipated within the earlier quarter and factors to a persistent weakening of mortgage dynamics. Banks’ threat perceptions continued to have the strongest tightening contribution, whereas declining threat tolerance additionally contributed in the direction of a tightening. The impression of banks’ cost of funds and steadiness sheet constraints remained contained and consistent with the impression registered within the earlier quarter. Within the cost of funds and steadiness sheet constraints, the biggest contributor in the direction of a tightening was banks’ liquidity position, possible additionally reflecting the lower in central financial institution liquidity assist, within the context of ongoing TLTRO repayments. In the second quarter of 2023, euro space banks anticipate an extra, although extra reasonable, web tightening of credit score requirements relative to the primary quarter (web proportion of 15%).

For housing loans, euro space banks reported an extra substantial web tightening of credit score requirements within the first quarter of 2023, at the same tempo as within the earlier quarter (web proportion of banks of 19%, after 21% within the earlier quarter; see Overview desk), whereas the extra tightening grew to become reasonable for shopper credit score (10%, after 17%). For housing loans, the online tightening was above banks’ expectations within the earlier quarter (web proportion of 13%), however remained markedly beneath the height noticed within the third quarter of 2022. For shopper credit score, the online tightening was broadly consistent with banks’ expectations (web proportion of 13%). The major drivers of the tightening for each housing loans and shopper credit score have been greater threat perceptions and, to a lesser extent, banks’ decrease threat tolerance. The tightening contribution of banks’ cost of funds and steadiness sheet constraints remained contained and broadly unchanged from the earlier quarter. Similar to the credit score requirements utilized to loans to companies, the tightening was primarily on account of banks’ lowering liquidity position. In the second quarter of 2023, banks anticipate an extra, although extra reasonable, web tightening of credit score requirements for housing loans (web proportion of 6%). For shopper credit score, they anticipate an extra web tightening of credit score requirements at the same tempo as within the first quarter of 2023 (12%).

Banks’ general phrases and circumstances (i.e. banks’ precise phrases and circumstances agreed within the mortgage contract) for brand new loans to companies and households tightened additional. For companies, the distinction between the proportion of banks reporting a tightening and the proportion of banks reporting an easing was nonetheless substantial however decrease than the final quarter (web proportion of 24%, after 38%). The widening of margins on riskier loans had the strongest tightening contribution. Margins on common loans widened however at a lesser tempo than within the earlier quarter, whereas collateral necessities additionally had a tightening impression on phrases and circumstances. Banks additionally reported an extra web tightening of general phrases and circumstances for housing loans (web proportion of 26%, after 31%) and shopper credit score and different lending to households (18%, after 21%). For each, the tightening was primarily on account of the rising stage of rates of interest (a part of “other factors”) and, particularly for housing loans, widening margins on riskier loans, reflecting the continued pass-through of upper market charges to mortgage charges and shopper credit score charges. At the identical time, competitors contributed to an easing of banks’ phrases and circumstances for loans to households.

In the primary quarter of 2023, banks reported a widespread enhance within the share of rejected purposes for all mortgage classes, reaching – for loans to companies – the very best web proportion registered because the query was first requested in 2015 (web proportion of 15%, after 12% within the earlier quarter). This is per an extra tightening of credit score requirements, which makes banks more and more extra prone to reject mortgage purposes regardless of the lower in mortgage demand. For housing loans and shopper credit score, the additional web enhance within the share of rejected purposes, though reported by fewer banks in contrast with the earlier quarter, stays at traditionally excessive ranges (17% after 27%, and 10% after 19% respectively).

Credit requirements for loans to enterprises tightened in web phrases in all 4 of the biggest euro space nations within the first quarter of 2023 (see Overview desk). Credit requirements for housing loans additionally tightened throughout all 4 largest euro space nations within the first quarter, whereas credit score requirements for shopper credit score and different lending to households tightened in Germany and Spain and remained unchanged in France and Italy.

Firms’ web demand for loans decreased strongly within the first quarter of 2023 (web proportion of -38%, after -12% within the earlier quarter; see Overview desk), which is the biggest web decline because the fourth quarter of 2008. The decline was stronger than anticipated by banks within the earlier quarter. The common stage of rates of interest was reported as the principle driver of decreased mortgage demand, in an surroundings of financial coverage tightening. Fixed funding additionally had a powerful dampening impression on mortgage demand. The impression of inventories and dealing capital turned broadly impartial, after having beforehand had a optimistic impression on mortgage demand, which can mirror the easing of provide bottlenecks and a moderation in vitality enter prices. In the second quarter of 2023, banks anticipate an extra, albeit smaller web decline in demand for loans to companies (web proportion of -18%).

The web lower in demand for housing loans remained robust within the first quarter of 2023 and near the sharp web lower within the earlier quarter (web proportion of -72%, after -74% within the earlier quarter; see Overview desk). Both decreases have been stronger than in some other quarter because the starting of the survey in 2003. The lower within the first quarter was stronger than anticipated by banks within the fourth quarter of 2022. Higher rates of interest, weakening housing market prospects and low shopper confidence all contributed negatively to the demand for loans for home buy. By distinction, the online lower in demand for shopper credit score grew to become smaller (web proportion of -19%, after -30%, see Overview desk), broadly consistent with what banks had anticipated within the earlier quarter. Higher rates of interest, low shopper confidence and declining spending on sturdy shopper items contributed to decrease demand. In the second quarter of 2023, banks anticipate an extra, though much less robust lower in housing mortgage demand (web proportion of -39%) and the same web lower in demand for shopper credit score (-16%) than within the first quarter.

Banks reported a web lower in demand for loans throughout all 4 largest euro space nations within the first quarter of 2023. Across all 4 largest nations, demand for loans to enterprises decreased in web phrases. In addition, web demand for housing loans decreased considerably in all 4 largest euro space nations, with very giant web decreases in Germany, Spain and France. Demand for shopper credit score decreased in web phrases in Germany, Spain and, to a lesser extent, in Italy, whereas it remained unchanged in France.

Overview desk

Latest BLS outcomes for the biggest euro space nations

Notes: “Avg.” refers to historic averages, that are calculated over the interval because the starting of the survey, excluding probably the most recent spherical. Owing to the completely different pattern sizes throughout nations, which broadly mirror the variations within the nationwide shares in lending to the euro space non-financial personal sector, the scale and volatility of the online percentages can’t be instantly in contrast throughout nations.

The April 2023 BLS additionally contained a lot of advert hoc questions. Euro space banks reported that their access to retail and wholesale funding deteriorated within the first quarter of 2023. For money markets and debt securities, the deterioration reverses the development within the access to those markets registered on the finish of final 12 months, presumably reflecting the March 2023 market turmoil, the decrease general stage of extra liquidity and the elevated collateral availability that had stemmed from TLTRO III voluntary early repayments within the final quarter of 2022. For retail funding, the tempo of decay in access to funding remained just like the earlier quarter and displays the continued enhance in financial institution deposit charges and shifts in the direction of extra extremely remunerated forms of saving. In the second quarter of 2023, access to all sources of retail and wholesale funds is anticipated to deteriorate additional.

Banks reported that the ECB’s financial coverage asset portfolio – for which modifications can come up on account of any transactions, together with lower than full reinvestments – had a unfavorable impression on their market financing circumstances, liquidity positions and complete belongings during the last six months. Banks additionally famous that the impression on profitability was broadly impartial, though the impression through capital losses remained unfavorable. The ECB’s financial coverage asset portfolio additionally had a web tightening impression on phrases and circumstances for loans to companies and households, whereas there was a unfavorable impression on lending volumes throughout all classes of lending for the primary time since this query was launched. Banks anticipate that the impression on market financing circumstances, liquidity positions and complete belongings will proceed to be unfavorable over the subsequent six months, whereas the tightening impression on phrases and circumstances and the unfavorable impression on lending volumes are additionally anticipated to proceed.

Euro space banks indicated a unfavorable impression of the continued phase-out of TLTRO III on their liquidity positions, profitability and their general funding circumstances during the last six months, which is anticipated to proceed over the subsequent six months in opposition to the backdrop of TLTRO III funds maturing or being voluntarily repaid early, resulting in a discount in lending volumes. TLTRO III had a tightening impression on credit score requirements for loans to companies, and a small web tightening impression on loans to households. Over the subsequent six months, credit score requirements are anticipated to tighten additional particularly as a consequence of the biggest remaining TLTRO III operation maturing in June 2023. Against the identical backdrop, whereas the impression on phrases and circumstances was nonetheless solely barely tilted in the direction of tightening over the previous six months, the phase-out of TLTRO III is anticipated to result in a widespread tightening over the second and third quarter of this 12 months. The impression on lending volumes is anticipated to show unfavorable throughout all classes of lending over the subsequent six months.

Euro space banks indicated a markedly optimistic impression of the ECB key rate of interest choices on their web curiosity margins over the previous six months, based on a brand new query which was launched on this survey spherical. The optimistic impression on financial institution curiosity margins additionally translated right into a excessive share of banks reporting a optimistic impression of the ECB charge hikes on their web curiosity revenue, which led to a largely optimistic impact on their general profitability. At the identical time, the impression of the rate of interest choices on volumes was unfavorable, per sharply decelerating mortgage demand as reported elsewhere within the survey and weakening deposit dynamics. Moreover, euro space banks reported a unfavorable impression of the ECB rate of interest choices on their non-interest revenue, as a result of each capital losses and decrease web charge and fee revenue, and a unfavorable impression through greater provisioning wants and impairments. Banks anticipate largely related impacts of the ECB key rate of interest choices on the elements of financial institution profitability over the subsequent six months, aside from capital losses, which banks anticipate to be decrease.

Box 1
General notes

The financial institution lending survey (BLS) is addressed to senior mortgage officers at a consultant pattern of euro space banks. In the present spherical, 158 banks have been surveyed, representing all euro space nations and reflecting the traits of their respective nationwide banking buildings. The major objective of the BLS is to reinforce the Eurosystem’s information of financial institution lending circumstances within the euro space.^[2]

BLS questionnaire

The BLS questionnaire incorporates 22 customary questions on previous and anticipated future developments: 18 backward-looking questions and 4 forward-looking questions. In addition, it incorporates one open-ended query. Those questions concentrate on developments in loans to euro space residents (i.e. home and euro space cross-border loans) and distinguish between three mortgage classes: loans or credit score strains to enterprises; loans to households for home buy; and shopper credit score and different lending to households. For all three classes, questions are requested concerning the credit score requirements utilized to the approval of loans, the phrases and circumstances of latest loans, mortgage demand, the components affecting mortgage provide and demand circumstances, and the proportion of mortgage purposes which are rejected. Survey questions are typically phrased when it comes to modifications over the previous three months or anticipated modifications over the subsequent three months. Survey individuals are requested to point in a qualitative manner the energy of any tightening or easing or the energy of any lower or enhance, reporting modifications utilizing the next five-point scale: (1) tightened/decreased significantly, (2) tightened/decreased considerably, (3) mainly no change, (4) eased/elevated considerably, or (5) eased/elevated significantly.

In addition to the usual questions, the BLS questionnaire might comprise advert hoc questions on particular subjects of curiosity. Whereas the usual questions cowl a three-month time interval, the advert hoc questions are inclined to discuss with modifications over an extended time interval (e.g. over the previous and subsequent six months).

Aggregation of banks’ replies to nationwide and euro space BLS outcomes

The responses of the individual banks taking part within the BLS are aggregated in two steps to type the euro space outcomes. In step one, the responses of individual banks are aggregated to nationwide outcomes for the euro space nations. In the second step, the nationwide BLS outcomes are aggregated to euro space BLS outcomes.

In step one, banks’ replies are aggregated to nationwide BLS outcomes for all nations by making use of equal weights to all banks within the pattern.^[3] For two nations (Malta and Slovakia), nationwide outcomes are moreover aggregated by making use of a weighting scheme primarily based on the quantities excellent of loans to non-financial firms and households of the individual banks within the respective nationwide samples.

In the second step, because the numbers of banks within the nationwide samples differ significantly and don’t all the time mirror these nations’ respective shares in lending to euro space non-financial firms and households, the unweighted nationwide survey outcomes of all nations are aggregated to euro space BLS outcomes by making use of a weighting scheme primarily based on the nationwide shares of excellent loans to euro space non-financial firms and households.

BLS indicators

Responses to questions referring to credit score requirements are analysed on this report by trying on the distinction (the “net percentage”) between the proportion of banks reporting that credit score requirements utilized within the approval of loans have been tightened and the proportion of banks reporting that they’ve been eased. For all questions, the online proportion is set on the premise of all taking part banks which have business in or publicity to the respective mortgage classes (i.e. they’re all included within the denominator when calculating the online proportion). This implies that banks that specialize in sure mortgage classes (e.g. banks that solely grant loans to enterprises) are solely included within the aggregation for these classes. All different taking part banks are included within the aggregation of all questions, even when a financial institution replies {that a} query is “not applicable” (“NA”). This harmonised aggregation technique was launched by the Eurosystem within the April 2018 BLS. It has been utilized to all euro space and nationwide BLS ends in the present BLS questionnaire, together with backdata.^[4] The ensuing revisions for the usual BLS questions have typically been small, however revisions for some advert hoc questions have been bigger owing to the next variety of “not applicable” replies by banks.

A optimistic web proportion signifies {that a} bigger proportion of banks have tightened credit score requirements (“net tightening”), whereas a unfavorable web proportion signifies {that a} bigger proportion of banks have eased credit score requirements (“net easing”).

Likewise, the time period “net demand” refers back to the distinction between the proportion of banks reporting a rise in mortgage demand (i.e. a rise in financial institution mortgage financing wants) and the proportion of banks reporting a decline. Net demand will due to this fact be optimistic if a bigger proportion of banks have reported a rise in mortgage demand, whereas unfavorable web demand signifies {that a} bigger proportion of banks have reported a decline in mortgage demand.

In the evaluation of survey balances for the euro space, web percentages between -1 and +1 are typically known as “broadly unchanged”. For nation outcomes, web proportion modifications are reported in a factual method, as differing pattern sizes throughout nations imply that the solutions of individual banks have differing impacts on the magnitude of web proportion modifications.

In addition to the “net percentage” indicator, the ECB additionally publishes another measure of banks’ responses to questions referring to modifications in credit score requirements and web demand. This measure is the weighted distinction (“diffusion index”) between the proportion of banks reporting that credit score requirements have been tightened and the proportion of banks reporting that they’ve been eased. Likewise, as regards demand for loans, the diffusion index refers back to the weighted distinction between the proportion of banks reporting a rise in mortgage demand and the proportion of banks reporting a decline. The diffusion index is constructed within the following manner: lenders who’ve answered “considerably” are given a weight (rating of 1) which is twice as giant as that given to lenders who’ve answered “somewhat” (rating of 0.5). The interpretation of the diffusion indices follows the identical logic because the interpretation of web percentages.

Detailed tables and charts primarily based on the responses supplied might be present in Annex 1 for the usual questions and Annex 2 for the advert hoc questions. In addition, BLS time sequence information are available on the ECB’s web site through the Statistical Data Warehouse.

A replica of the questionnaire, a glossary of BLS phrases and a BLS consumer information with info on the BLS sequence keys can all be discovered on the ECB’s web site.

2.1 Loans to enterprises

2.1.1 Credit requirements for loans to enterprises tightened additional considerably

Euro space banks tightened additional considerably their credit score requirements for loans or credit score strains to enterprises within the first quarter of 2023, i.e. the proportion of banks reporting a tightening of credit score requirements was considerably bigger than the proportion of banks reporting an easing (web proportion of banks of 27%, after 27% within the fourth quarter of 2022; see Chart 1 and Overview desk). The web tightening in credit score requirements was stronger than banks had anticipated within the earlier quarter and factors to a persistent weakening of mortgage dynamics. Looking at developments from a historic perspective, the tempo of web tightening in credit score requirements for the final two quarters is the biggest seen because the sovereign debt disaster (web proportion of 35% recorded within the fourth quarter of 2011). Credit requirements tightened to the same extent for loans to small and medium-sized enterprises (SMEs; web proportion of 23%, after 22%) and for loans to giant companies (24%, after 20%; see Chart 2). At the identical time, the tightening was stronger for long-term loans (28%, after 27%) than for short-term loans (17%, after 20%).

Risks associated to the financial outlook and trade or firm-specific scenario had the biggest tightening impression on credit score requirements for companies (see Chart 1 and Table 1). To a lesser extent, banks’ declining threat tolerance additionally had a tightening impression. The important tightening impression is broadly consistent with developments within the European Commission’s financial sentiment indicator, which remained barely beneath its long-run common within the first quarter. Against the backdrop of will increase in ECB key rates of interest and reduces in central financial institution liquidity, banks’ cost of funds and steadiness sheet circumstances additionally had a tightening impression on credit score requirements for loans to euro space companies. Within the cost of funds and steadiness sheet constraints, the biggest contributor in the direction of a tightening was banks’ liquidity position, possible additionally reflecting a lower in central financial institution liquidity related to maturing and early repayments of TLTRO III funds and, since March, the decrease reinvestments of ECB’s financial coverage asset portfolio (see Section 4). Factors contributing to modifications in credit score requirements have been related for SMEs and huge enterprises.

Chart 1

Changes in credit score requirements utilized to the approval of loans or credit score strains to enterprises, and contributing components

Notes: “Actual” values are modifications which have occurred, whereas “expected” values are modifications anticipated by banks. Net percentages are outlined because the distinction between the sum of the odds of banks responding “tightened considerably” and “tightened somewhat” and the sum of the odds of banks responding “eased somewhat” and “eased considerably”. The web percentages for responses to questions associated to contributing components are outlined because the distinction between the proportion of banks reporting that the given issue contributed to a tightening and the proportion reporting that it contributed to an easing. “Cost of funds and balance sheet constraints” is the unweighted common of “banks’ capital and the costs related to banks’ capital position”, “access to market financing” and “liquidity position”; “risk perceptions” is the unweighted common of “general economic situation and outlook”, “industry or firm-specific situation and outlook/borrower’s creditworthiness” and “risk related to the collateral demanded”; “competition” is the unweighted common of “competition from other banks”, “competition from non-banks” and “competition from market financing”. The web percentages for “other factors” discuss with additional components which have been talked about by banks as having contributed to modifications in credit score requirements.

Chart 2

Changes in credit score requirements utilized to the approval of loans or credit score strains to SMEs and huge enterprises, and contributing components

Credit requirements for loans to enterprises tightened throughout all 4 largest euro space nations, pushed primarily by greater threat perceptions. Declining threat tolerance and banks’ cost of funds and steadiness sheet circumstances additionally had a tightening contribution in France, Italy and Spain. In Germany, the contribution of cost of funds and steadiness sheet circumstances was broadly impartial, though there was a small tightening impression of banks’ access to market financing.

In the second quarter of 2023, euro space banks anticipate an extra, although extra reasonable, web tightening of credit score requirements relative to the primary quarter (web proportion of 15%). Banks anticipate a web tightening each for loans to SMEs (web proportion of 12%) and huge enterprises (web proportion of 13%).

Table 1

Factors contributing to modifications in credit score requirements for loans or credit score strains to enterprises

2.1.2 Terms and circumstances on loans to enterprises tightened additional

Banks’ general phrases and circumstances (i.e. precise phrases and circumstances agreed within the mortgage contract) for brand new loans to enterprises tightened additional within the first quarter of 2023 (web proportion of 24%, after 38%; see Chart 3 and Table 2). There was a 0 proportion of banks reporting an easing of general phrases and circumstances, with the online proportion being pushed by banks reporting a tightening, though to a lesser extent than within the final quarter. Tighter phrases and circumstances are confirmed by the continued rise within the combination cost of borrowing for companies seen in at the moment available rate of interest information for the primary quarter. The tightening in phrases and circumstances was primarily on account of a widening in margins (outlined because the unfold over related market reference charges) on riskier loans (web proportion of 20%) and to a lesser extent on common loans (web proportion of 8%). The widening of margins on riskier loans was broadly consistent with the earlier quarter, whereas the widening of margins on common loans was much less pronounced. Collateral necessities (web proportion of seven%) and different phrases and circumstances additionally had a tightening impression on companies’ general phrases and circumstances. Banks reported an extra substantial, albeit decrease, web tightening of general phrases and circumstances for loans to each SMEs and huge companies (see Chart 4). For each classes of lending, mortgage margins widened extra for riskier loans than for common loans.

Chart 3

Changes in phrases and circumstances on loans or credit score strains to enterprises

Notes: “Margins” are outlined because the unfold over related market reference charges. “Other terms and conditions” is the unweighted common of “non-interest rate charges”, “size of the loan or credit line”, “loan covenants” and “maturity”. The web percentages for “other factors” discuss with additional components which have been talked about by banks as having contributed to modifications in phrases and circumstances.

Chart 4

Changes in phrases and circumstances on loans or credit score strains to SMEs and huge enterprises

Banks’ greater threat perceptions, decreased threat tolerance, and cost of funds and steadiness sheet constraints continued to be the principle drivers of the online tightening in general phrases and circumstances for loans to companies within the first quarter of 2023 (see Table 3), with rising inter-bank competitors counterbalancing the pattern. Risk perceptions associated to the financial outlook and the creditworthiness of companies had a big tightening impression on phrases and circumstances, whereas the impression of the collateral demanded was extra reasonable. In the context of will increase in ECB key rates of interest and reduces within the central financial institution steadiness sheet, banks’ cost of funds and steadiness sheet constraints contributed in the direction of the tightening, with the biggest contribution from prices associated to market financing. On the opposite hand, competitors had an easing impression, pushed by elevated inter-bank competitors, which may partially clarify the decrease tempo of tightening within the first quarter.

Table 2

Changes in phrases and circumstances on loans or credit score strains to enterprises

Table 3

Factors contributing to modifications in general phrases and circumstances on loans or credit score strains to enterprises

Notes: The web percentages for these questions referring to contributing components are outlined because the distinction between the proportion of banks reporting that the given issue contributed to a tightening and the proportion reporting that it contributed to an easing. See the notes to Chart 1.

In all 4 largest euro space nations, general phrases and circumstances tightened on loans or credit score strains to enterprises. In Germany, the online tightening was decrease relative to the opposite three largest euro space nations. Margins on riskier loans contributed in the direction of a tightening throughout all 4 of the biggest euro space nations, whereas margins on common loans had an easing impression in France, and a tightening impression in Germany, Italy and Spain. Banks in Germany, Italy and Spain additionally cited collateral necessities as having a tightening impression. In Italy, banks referred to the extent of rates of interest and will increase of benchmark charges (within the “other factors”) having a tightening impression in addition to to different phrases and circumstances, with the biggest tightening impression amongst these being pushed by restrictions on mortgage sizes and tighter maturity circumstances.

2.1.3 Rejection charge for loans to enterprises elevated

Euro space banks reported within the first quarter of 2023 the biggest web enhance within the share of rejected purposes for loans to companies since this query was launched in 2015 (web proportion of 15%, after 12% within the earlier quarter; see Chart 5). This growth is per an extra tightening in credit score requirements, which makes banks extra prone to reject mortgage purposes regardless of the lower in mortgage demand. The web enhance within the share of rejected mortgage purposes was related for loans to SMEs (web proportion of 11%, after 11%) and for loans to giant companies (web proportion of 10%, after 10%).

Chart 5

Changes within the share of rejected mortgage purposes for enterprises

Notes: Share of rejected mortgage purposes relative to the quantity of all mortgage purposes in that mortgage class. The breakdown by agency sizes was launched within the first quarter of 2022.

Banks in France, Germany and Spain reported a web enhance within the share of rejected purposes for loans to companies within the first quarter of 2023, whereas there was no change within the share of rejected purposes in Italy. The web share of rejected mortgage software elevated for each SMEs and huge enterprises in Germany, France and Spain, whereas the share of rejected purposes barely decreased for SMEs in Italy.

2.1.4 Net demand for loans to enterprises decreased strongly

According to euro space banks, companies’ web demand for loans decreased strongly within the first quarter of 2023 (web proportion of -38%, after -12% within the earlier quarter; see Chart 6). This is the biggest web decline because the fourth quarter of 2008 which was the strongest decline seen throughout the world monetary disaster. The decline was stronger than anticipated by banks within the earlier quarter. Loan demand decreased in web phrases for SMEs (web proportion of -37%, see Chart 7) and huge companies (web proportion of -31%). The web lower in demand was significantly robust for long-term loans, at a tempo just like the very best charge seen throughout the world monetary disaster (-45%, in contrast with -43% within the first quarter of 2009), whereas demand for short-term loans decreased to a lesser extent (-11%) after being broadly unchanged within the earlier quarter.

Chart 6

Changes in demand for loans or credit score strains to enterprises, and contributing components

Notes: “Actual” values are modifications which have occurred, whereas “expected” values are modifications anticipated by banks. Net percentages for the questions on demand for loans are outlined because the distinction between the sum of the odds of banks responding “increased considerably” and “increased somewhat” and the sum of the odds of banks responding “decreased somewhat” and “decreased considerably”. The web percentages for responses to questions referring to contributing components are outlined because the distinction between the proportion of banks reporting that the given issue contributed to rising demand and the proportion reporting that it contributed to lowering demand. “Other financing needs” is the unweighted common of “mergers/acquisitions and corporate restructuring” and “debt refinancing/restructuring and renegotiation”; “use of alternative finance” is the unweighted common of “internal financing”, “loans from other banks”, “loans from non-banks”, “issuance/redemption of debt securities” and “issuance/redemption of equity”.

Chart 7

Changes in demand for loans or credit score strains to SMEs and huge enterprises, and contributing components

Note: See the notes to Chart 6. Developments within the components having an impression on mortgage demand throughout agency sizes have been added within the first quarter of 2022.

Table 4

Factors contributing to modifications in demand for loans or credit score strains to enterprises

Demand for loans to companies fell throughout all 4 largest euro space nations. The common stage of rates of interest and financing wants associated to fastened funding had a notable unfavorable contribution to demand throughout all 4 giant nations. The impact of inventories and dealing capital was extra heterogeneous, with banks in Germany and Italy reporting a optimistic contribution in the direction of mortgage demand, presumably pointing to enter prices associated to excessive vitality costs or different short-term financing wants of companies resembling remaining provide bottlenecks, whereas in France and Spain there was a dampening contribution. Banks in all 4 nations indicated that different financing wants, largely associated to mergers and acquisitions, had a unfavorable contribution in the direction of demand.

In the second quarter of 2023, banks anticipate an extra, albeit smaller, web decline in demand for loans to companies (web proportion of -18%). Banks anticipate a big, albeit smaller, lower in demand for long-term loans (web proportion of -22%), whereas the demand for short-term loans is anticipated to lower to a lesser extent (web proportion of -6%). Net demand for loans to each SMEs (web proportion of -16%) and huge companies (web proportion of -17%) are anticipated to lower at related charges.

2.2 Loans to households for home buy

2.2.1 Credit requirements for loans to households for home buy tightened additional considerably

In the primary quarter of 2023, euro space banks tightened additional considerably their credit score requirements on loans to households for home buy, at the same tempo as within the earlier quarter (web proportion of banks at 19%, after 21% within the earlier quarter). The tempo of the tightening remained markedly beneath the height noticed within the third quarter of 2022 (see Chart 8 and Overview desk). It additionally remained beneath the tightening peaks reached throughout the pandemic, the sovereign debt disaster and particularly the worldwide monetary disaster.

Chart 8

Changes in credit score requirements utilized to the approval of loans to households for home buy, and contributing components

Notes: See the notes to Chart 1. “Cost of funds and balance sheet constraints” is the unweighted common of “banks’ capital and the costs related to banks’ capital position”, “access to market financing” and “liquidity position”; “Risk perceptions” is the unweighted common of “general economic situation and outlook”, “housing market prospects, including expected house price developments” and “borrower’s creditworthiness”; “competition” is the unweighted common of “competition from other banks” and “competition from non-banks”. The web percentages for “other factors” discuss with additional components which have been talked about by banks as having contributed to modifications in credit score requirements.

Banks’ greater threat perceptions have been the principle issue driving the online tightening of credit score requirements, albeit to a lesser extent than within the earlier quarter (see Chart 8 and Table 5). This was primarily associated to banks’ issues concerning the final financial outlook, for which the extra tightening impression grew to become smaller in contrast with the earlier quarter, which might be per a nonetheless subdued however improved outlook for euro space financial development within the first quarter. In addition, banks’ decrease threat tolerance continued to contribute to the tightening. The tightening contribution of banks’ cost of funds and steadiness sheet constraints remained contained. Similar to the credit score requirements utilized to loans to companies, the tightening was primarily pushed by banks’ liquidity positions. By distinction, the tightening impression of banks’ prices associated to their capital positions and market financing remained small, additionally reflecting euro space banks’ strong capital position.

Across all 4 largest euro space nations, credit score requirements for loans to households for home buy tightened in web phrases. In most of those nations, banks’ threat perceptions and decrease threat tolerance have been the principle drivers of the online tightening. At the identical time, banks in Spain and France significantly referred to a tightening impression of banks’ cost of funds and steadiness sheet constraints, both as a result of their market financing circumstances (Spain) or liquidity positions (France and Spain), whereas the prices associated to their capital position didn’t play a task. Spanish banks additionally reported a web easing impression related to elevated competitors from different banks.

In the second quarter of 2023, euro space banks anticipate an extra, although extra reasonable, web tightening of credit score requirements on loans to households for home buy (web proportion of 6%).

Table 5

Factors contributing to modifications in credit score requirements for loans to households for home buy

2.2.2 Terms and circumstances on loans to households for home buy tightened additional

Banks reported an extra web tightening of their general phrases and circumstances for brand new housing loans within the first quarter of 2023 (web proportion of 26%, after 31% within the earlier quarter; see Chart 9 and Table 6). The web tightening of banks’ general phrases and circumstances was primarily on account of the rising stage of rates of interest (a part of “other factors”) and widening margins on riskier loans, reflecting the continued pass-through of upper market charges to mortgage charges and issues about credit score dangers. In addition, banks talked about a small tightening contribution of margins on common loans, loan-to-value (LTV) ratios, different mortgage dimension limits (a part of “other terms and conditions”) and mortgage maturities.

Chart 9

Changes in phrases and circumstances on loans to households for home buy

Notes: “Margins” are outlined because the unfold over related market reference charges. “Other terms and conditions” is the unweighted common of “loan-to-value ratio”, “other loan size limits”, “non-interest rate charges” and “maturity”. The web percentages for “other factors” discuss with additional components which have been talked about by banks as having contributed to modifications in phrases and circumstances.

Table 6

Changes in phrases and circumstances on loans to households for home buy

Banks’ greater cost of funds and steadiness sheet scenario made the strongest contribution to the online tightening of general phrases and circumstances (see Table 7), whereas competitors exerted a widespread easing impression. In addition, banks additionally talked about the next as contributors to the tightening of their general phrases and circumstances: the extent of rates of interest, the upper market reference charges to which mortgage loans are linked and the rise within the usury charge in France^[5] (see developments by nation beneath). The tightening impression of banks’ threat perceptions and decrease threat tolerance grew to become smaller in contrast with the earlier quarter, suggesting that banks didn’t see financial dangers rising additional within the first quarter. By distinction, competitors had a web easing impression on phrases and circumstances.

In many of the giant euro space economies, general phrases and circumstances for housing loans tightened in web phrases. In Italy and Spain, banks referred to the rising stage of rates of interest (included in “other factors”) along with widening mortgage margins, contributing to tighter general phrases and circumstances. By distinction, in Germany, banks reported a web easing of their general phrases and circumstances, pushed by mortgage margins. This is consistent with the extra restricted enhance in mortgage charges on new loans in Germany within the first quarter in contrast with the opposite giant euro space nations. The major issue behind this growth was intensified competitors, which can be associated to the robust lower in demand for housing loans and competitors for debtors between banks. In France, banks referred to a widening of mortgage margins, partly on account of the update of the executive threshold for a lending charge to be categorised as usury charge (a part of “other factors”; see footnote 5). This allowed banks in France to extend the pass-through of ECB charge hikes to mortgage charges, after a number of quarters through which that they had reported a narrowing of mortgage margins because of the authorized constraint of the usury charge. The dominant issue contributing to the tightening of general phrases and circumstances in Spain, France and Italy have been banks’ funding prices, whereas competitors had an easing impression in Germany, Spain and Italy.

Table 7

Factors contributing to modifications in general phrases and circumstances on loans to households for home buy

Note: The web percentages for these questions referring to contributing components are outlined because the distinction between the proportion of banks reporting that the given issue contributed to a tightening and the proportion reporting that it contributed to an easing.

2.2.3 Rejection charge for housing loans elevated

In the primary quarter of 2023, euro space banks reported a web enhance within the share of rejected purposes for housing loans, albeit decrease than within the earlier quarter (web proportion of 17%, after 27%; see Chart 10). This is broadly consistent with the moderation within the extra tightening of credit score requirements within the final two quarters. At the identical time, the nonetheless substantial web share might mirror banks’ issues about households’ debt servicing capability in an surroundings of upper cost of dwelling and rising rates of interest. Banks in Germany, Spain and France reported a web enhance within the proportion share of rejected mortgage purposes. By distinction with the opposite three largest euro space nations, Italian banks reported a web lower within the share of rejected mortgage purposes.

Chart 10

Changes within the share of rejected mortgage purposes for households

Notes: Share of rejected mortgage purposes relative to the quantity of all mortgage purposes in that mortgage class.

2.2.4 Net demand for housing loans decreased strongly

The web lower in housing mortgage demand remained robust and near the sharp web lower within the fourth quarter of 2022 (web proportion of banks of -72%, after -74% within the earlier quarter; see Chart 11 and Overview desk). Both decreases have been stronger than in some other quarter because the starting of the survey in 2003 and constantly stronger than anticipated by banks within the quarter earlier than.

Chart 11

Changes in demand for loans to households for home buy, and contributing components

Notes: See the notes to Chart 5. “Other financing needs” is the unweighted common of “debt refinancing/restructuring and renegotiation” and “regulatory and fiscal regime of housing markets”; “use of alternative finance” is the unweighted common of “internal finance of house purchase out of savings/down payment”, “loans from other banks” and “other sources of external finance”.

Higher rates of interest, weakening housing market prospects and low shopper confidence all contributed negatively to the demand for loans for home buy (see Chart 11 and Table 8). For the third quarter in a row, the final stage of rates of interest remained the principle unfavorable contributor to housing mortgage demand. The unfavorable impression of shopper confidence and housing market prospects was once more sizeable within the first quarter of 2023, however remained much less unfavorable than the acute values throughout the world monetary disaster. The growth of those components is consistent with the present surroundings of appreciable rises in mortgage charges for euro space households and a considerable slowdown within the annual development of euro space home costs. Additionally, the European Commission’s shopper confidence indicator remained nicely beneath its long-term common for the euro space as much as March. To a small extent, different financing wants and the usage of different finance, primarily as a result of loans from different banks, additionally contributed negatively to demand, which is consistent with the reported robust competitors between banks for granting new housing loans in an more and more slender market.

Demand for housing loans decreased considerably in all 4 largest euro space nations, with very giant web decreases in Germany, Spain and France. The common stage of rates of interest, shopper confidence and housing market prospects all had a downward impression on demand in all 4 nations. Among these components, rising rates of interest had the strongest dampening impression in all nations. The unfavorable impression of housing market prospects was bigger in Germany and France than in Spain and Italy.

In the second quarter of 2023, banks anticipate an extra, though much less robust lower in housing mortgage demand (web proportion of banks of -39%).

Table 8

Factors contributing to modifications in demand for loans to households for home buy

2.3 Consumer credit score and different lending to households

2.3.1 Credit requirements for shopper credit score and different lending to households tightened reasonably additional

Banks reported a reasonable additional web tightening of credit score requirements on shopper credit score and different lending to households within the first quarter of 2023, which was much less pronounced than within the earlier quarter (web proportion of 10% after 17% within the earlier quarter; see Chart 12 and Overview desk). This was broadly consistent with banks’ expectations within the earlier quarter (web proportion of 13%).

Increased threat perceptions and banks’ decrease threat tolerance primarily contributed to the online tightening of credit score requirements for shopper credit score (see Chart 12 and Table 9). This was largely associated to banks’ perceptions of the financial outlook and shoppers’ creditworthiness. The tightening impression of banks’ cost of funds and steadiness sheet circumstances remained contained, with small contributions from banks’ liquidity positions, funding prices, capital positions and market financing.

Across the biggest euro space nations, credit score requirements for shopper credit score and different lending to households tightened in web phrases in Germany and Spain, whereas they have been unchanged on steadiness in France and Italy. Higher threat perceptions and, to a lesser extent, banks’ decrease threat tolerance, contributed to the online tightening in Germany and Spain, whereas banks’ cost of funds and steadiness sheet scenario additionally had a related tightening impression in Spain.

In the second quarter of 2023, euro space banks anticipate an extra web tightening of credit score requirements for shopper credit score and different lending to households at the same tempo as within the first quarter (web proportion of 12%).

Chart 12

Changes in credit score requirements utilized to the approval of shopper credit score and different lending to households, and contributing components

Table 9

Factors contributing to modifications in credit score requirements for shopper credit score and different lending to households

2.3.2 Terms and circumstances on shopper credit score and different lending to households tightened additional

Banks’ general phrases and circumstances utilized when granting shopper credit score and different lending to households tightened additional in web phrases within the first quarter of 2023 (web proportion of 18%, after 21% within the earlier quarter; see Chart 13 and Table 10). Euro space banks referred primarily to a tightening impression of rising rates of interest (a part of “other factors”) and, to a small extent, a widening of margins on riskier loans.

Chart 13

Changes in phrases and circumstances on shopper credit score and different lending to households

Notes: “Margins” are outlined because the unfold over a related market reference charge. “Other terms and conditions” is the unweighted common of “size of the loan”, “non-interest rate charges” and “maturity”. The web percentages for “other factors” discuss with additional components which have been talked about by banks as having contributed to modifications in phrases and circumstances.

Risk perceptions contributed most to the online tightening of banks’ general phrases and circumstances (see Table 11). Rising rates of interest and banks’ decrease threat tolerance additionally had a tightening impression on general phrases and circumstances, whereas competitors had a web easing impression.

Across all 4 of the biggest euro space nations, general phrases and circumstances for shopper credit score and different lending to households tightened in web phrases. Banks in Germany and Spain reported a widening of mortgage margins, reflecting the pass-through of upper market charges to lending charges for shoppers. By distinction, banks in Italy referred to a narrowing of mortgage margins within the first quarter, associated to the additional enhance within the common stage of rates of interest (included in “other factors”), which has not but been absolutely handed by means of to debtors. Banks in France reported a web tightening of their phrases and circumstances within the first quarter partly on account of the month-to-month update of the usury charge (see footnote 5 above). In all the largest nations, each banks’ cost of funds and steadiness sheet scenario in addition to threat perceptions performed a related function within the tightening of phrases and circumstances, whereas competitors contributed to an easing in Spain and Italy.

Table 10

Changes in phrases and circumstances on shopper credit score and different lending to households

Table 11

Factors contributing to modifications in general phrases and circumstances on shopper credit score and different lending to households

2.3.3 Rejection charge for shopper credit score and different lending to households elevated at a decrease charge

Euro space banks reported a web enhance within the share of rejected purposes for shopper credit score at a decrease charge in contrast with the earlier quarter (10%, after 19% within the earlier quarter; see Chart 10 above). Across the biggest euro space nations, the online enhance within the share of rejected mortgage purposes diminished in Germany and France, whereas the online proportion of banks reporting an elevated share grew to become extra pronounced in Spain. In Italy, banks reported a web lower within the share of mortgage rejections for shopper credit score.

2.3.4 Net demand for shopper credit score and different lending to households decreased at a smaller charge

In the primary quarter of 2023, banks reported a smaller web lower in demand for shopper credit score and different lending to households (web proportion of banks at -19%, after -30% within the earlier quarter; see Chart 14 and Overview desk). This decline was broadly consistent with what banks had anticipated within the earlier quarter (-18%).

Chart 14

Changes in demand for shopper credit score and different lending to households, and contributing components

Notes: See the notes to Chart 5. “Use of alternative finance” is the unweighted common of “internal financing out of savings”, “loans from other banks” and “other sources of external finance”. “Consumption exp. (real estate)” denotes “consumption expenditure financed through real estate-guaranteed loans”.

Higher rates of interest, low shopper confidence and a web decline in spending on sturdy shopper items contributed, in web phrases, to decrease demand (see Chart 14 and Table 12). All three components had a smaller contribution in the direction of the autumn in demand relative to the earlier quarter. These developments are per the dampening impression of excessive inflation and elevated vitality prices on households’ actual disposable revenue. While the dampening impression remained robust, the moderation in inflation and the discount in vitality supply-related uncertainty improved considerably the scenario for shoppers within the first quarter, which can have performed a task within the smaller web lower in mortgage demand for shopper durables. In addition, the downward impression of shopper confidence within the BLS is per the European Commission’s shopper confidence indicator, which remained beneath its long-term common within the first quarter.

Across the 4 largest euro space nations, demand for shopper credit score decreased in web phrases in Germany, Spain and, to a lesser extent, in Italy, whereas it remained unchanged in France. The common stage of rates of interest, low shopper confidence and a web decline within the spending for shopper durables contributed negatively in the direction of demand in all 4 nations.

In the second quarter of 2023, banks anticipate a considerably smaller web lower in demand for shopper credit score and different lending to households (web proportion of -16%).

Table 12

Factors contributing to modifications in demand for shopper credit score and different lending to households

3.1 Banks’ access to retail and wholesale funding^[6]

Euro space banks reported that their access to retail and wholesale funding had deteriorated within the first quarter of 2023. For money markets and debt securities (web percentages of banks at 7% and 13% respectively; see Chart 15), the deterioration reverses the development within the access to those markets registered on the finish of final 12 months, presumably reflecting the March 2023 market turmoil, the decrease general stage of extra liquidity and the elevated collateral availability that had stemmed from TLTRO III voluntary early repayments within the final quarter of 2022. The impression of the turmoil additionally tends to be supported by the truth that the reported deterioration was bigger than anticipated by banks within the earlier quarter. The reported deterioration was related for short-term and longer-term debt securities (web percentages of 12% and 13% respectively). For retail funding (web proportion of 5%), the deterioration in access remained secure in contrast with the earlier quarter and displays the continued enhance in financial institution deposit charges and shifts in the direction of extra extremely remunerated forms of saving. Access deteriorated for short-term deposits, whereas it remained broadly unchanged for longer-term deposits (web percentages of 9% and 1% respectively), which is consistent with outflows from in a single day deposits and shifts into time period deposits owing to the stronger rate of interest will increase for time period deposits.

Chart 15

Banks’ evaluation of funding circumstances and the flexibility to switch credit score threat off the steadiness sheet

Note: The web percentages are outlined because the distinction between the sum of the odds of banks responding “deteriorated considerably” and “deteriorated somewhat” and the sum of the odds of banks responding “eased somewhat” and “eased considerably”. The final interval denotes expectations indicated by banks within the present spherical.

Table 13

Banks’ evaluation of funding circumstances and the flexibility to switch credit score threat off the steadiness sheet

In the second quarter of 2023 euro space banks anticipate, on steadiness, the same deterioration of their access to money markets and debt securities funding (web percentages of 5% and 11% respectively). Along the identical line, a considerably greater web proportion of banks expects an extra deterioration of their access to retail funds in contrast with the primary quarter (web proportion of 8%).

3.2 The impression of the ECB’s financial coverage asset portfolio^[7]

3.2.1 Impact of the ECB’s financial coverage asset portfolio on banks’ monetary scenario

Euro space banks reported, in web phrases, that the ECB’s financial coverage asset portfolio had a unfavorable impression on their financing circumstances during the last six months (see Chart 16). Banks reported a bigger unfavorable impression on their market financing circumstances (web proportion of -16%, after -10%) and liquidity position (web proportion of -7%, after -5%), in contrast with the fourth quarter of 2022. In addition, the impression on banks’ profitability turned broadly impartial (web proportion of 1%, after -2%; see Chart 17), of which the impression through capital losses remained unfavorable. These developments mirror the top of the ECB’s web asset purchases since July 2022 and the swap from full to partial reinvestment of redemptions because the starting of March 2023. The impression on banks’ complete belongings was unfavorable, after a optimistic impression within the earlier quarter (web proportion of -4%, after 4%). This is consistent with the now unfavorable impression of modifications within the ECB’s asset portfolio on lending volumes, which was optimistic earlier than (see Section 3.2.2 beneath), in addition to the lower in central financial institution liquidity.

Chart 16

Overview of the impression of the ECB’s financial coverage asset portfolio on euro space banks’ monetary scenario

Notes: The web percentages are outlined because the distinction between the sum of the odds for “increased/improved considerably” and “increased/improved somewhat” and the sum of the odds for “decreased/deteriorated somewhat” and “decreased/deteriorated considerably”. The final interval denotes expectations indicated by banks within the present spherical.

Chart 17

Impact of the ECB’s financial coverage asset portfolio on financial institution profitability

Notes: See the notes to Chart 16. The final interval denotes expectations indicated by banks within the present spherical.

Over the subsequent six months, euro space banks anticipate, on steadiness, that the ECB’s financial coverage asset portfolio will proceed to have a unfavorable impression on their market financing circumstances, liquidity positions and complete belongings (web percentages of banks of -7%, -11% and -20% respectively). The impression on profitability is anticipated to stay broadly impartial (web proportion of 1%), with a unfavorable contribution from capital losses (web proportion of -6%).

3.2.2 Impact of the ECB’s financial coverage asset portfolio on banks’ lending circumstances and lending volumes

Over the previous six months, euro space banks reported a web tightening impression of the ECB’s financial coverage asset portfolio on phrases and circumstances for loans to enterprises, housing loans and shopper credit score (web percentages of banks of 6%, 8% and 5% respectively; see Chart 18). This follows a web easing impression reported within the earlier survey for loans to companies and for home buy, and a broadly impartial impression for shopper credit score, reflecting the tightening of financial coverage.

Euro space banks reported, for the primary time since this query was expanded to incorporate the impression on lending volumes in 2018, a unfavorable impression of the ECB’s financial coverage asset portfolio on lending volumes for loans to companies, housing loans and shopper credit score during the last six months (web percentages of -6%, -12% and -6% respectively; see Chart 18).

Chart 18

Impact of the ECB’s financial coverage asset portfolio on financial institution lending

Notes: The web percentages are outlined because the distinction between the sum of the odds for “tightened/increased considerably” and “tightened/increased somewhat” and the sum of the odds for “eased/decreased somewhat” and “eased/decreased considerably”. The final interval denotes expectations indicated by banks within the present spherical.

Over the subsequent six months, banks anticipate an extra tightening impression of the ECB’s financial coverage asset portfolio on their phrases and circumstances and an extra unfavorable impression on lending volumes throughout all classes of lending. The impression is anticipated to be best for loans to companies (web percentages of banks at 10% for phrases and circumstances and -10% for lending volumes) adopted by housing loans (web percentages of seven% and -7% respectively) and shopper credit score (web percentages of 5% and -5% respectively). Banks anticipate a slight tightening impression on credit score requirements on loans to companies, and a broadly impartial impression on each types of lending to households.

3.3 The impression of TLTRO III on banks and their lending insurance policies^[8]

Banks indicated a unfavorable impression of the continued phase-out of TLTRO III on their liquidity positions and profitability (web percentages of -5% and -7% respectively) over the previous six months within the context of TLTRO III maturing or being voluntarily repaid early (see Chart 19). Banks additionally famous a unfavorable impression on their general funding circumstances for the primary time because the begin of TLTRO III whereas the impression on market financing circumstances was impartial (web percentages of -9% and 0% respectively; see Chart 19), signalling that the continued phase-out of TLTRO III and the much less beneficial circumstances of TLTRO III after the recalibration in October 2022 have successfully induced a tightening of financial institution funding circumstances. The impression of TLTRO III on banks’ potential to fulfil regulatory or supervisory necessities remained optimistic (web proportion of seven%), though lower than earlier than owing to the discount in excellent TLTRO III liquidity and its decreased residual maturity.

Over the subsequent six months, banks anticipate an extra unfavorable impression of the phase-out of TLTRO III on their monetary scenario, particularly because of the substantial TLTRO III quantity maturing in June 2023. The unfavorable impression is anticipated to be best on their liquidity positions, general funding circumstances and profitability respectively.

Regarding their credit score requirements, banks reported a tightening impression of TLTRO III on all mortgage classes over the previous six months (web percentages of 4%, 2% and a couple of% respectively; see Chart 20). Regarding phrases and circumstances, banks additionally reported a web tightening impression for each housing loans and shopper credit score (each a web proportion of two%), whereas the impression on loans to companies was nonetheless broadly impartial (web proportion of 1%).

The impression of TLTRO III on financial institution lending volumes was not markedly optimistic for the primary time. Banks reported a unfavorable impression of TLTRO III for housing loans over the previous six months (web proportion of -3%; see Chart 20) and a broadly impartial impression on lending volumes to companies (web proportion of 1%) and for shopper credit score (-1%).

Chart 19

Impact of TLTRO III on banks’ monetary scenario

Notes: The indicators for these web percentages have been inverted to point out web enhancements. The web percentages are outlined because the distinction between the sum of the odds for “contributed considerably to an improvement” and “contributed somewhat to an improvement” and the sum of the odds for “contributed somewhat to a deterioration” and “contributed considerably to a deterioration”. “Overall funding conditions” was added within the first quarter of 2023. The final interval denotes expectations indicated by banks within the present spherical.

Chart 20

Impact of TLTRO III on financial institution lending circumstances and lending volumes

Notes: Net percentages are outlined because the distinction between the sum of the odds for “contributed considerably to a tightening or increase” and “contributed somewhat to a tightening or increase” and the sum of the odds for “contributed somewhat to an easing or decrease” and “contributed considerably to an easing or decrease”. The last period denotes expectations indicated by banks in the current round.

Over the next six months, euro area banks expect a strong tightening impact of the phase-out of TLTRO III on terms and conditions and credit standards as well as a marked reduction in lending volumes, consistent with the maturity of outstanding TLTRO III in June 2023.

3.4 The impact of ECB key interest rate decisions on bank profitability^[9]

Euro area banks reported a markedly positive impact of the ECB key interest rate decisions on their net interest margins over the past six months, according to a new question that was introduced in this survey round. The positive impact on bank interest margins (net percentage of banks at 49%; see Chart 21) translated into a high share of banks reporting a positive impact of the ECB rate hikes on their net interest income (net percentage of 47%), which led to a largely positive effect on their overall profitability (net percentage of 40%).^[10] At the same time, the impact of the ECB interest rate decisions on volumes was negative, consistent with sharply decelerating loan demand as reported elsewhere in the survey and weakening deposit dynamics, exerting a dampening impact on bank profitability according to the banks (net percentage of -17%). This direct evidence from the banks on the impact of the ECB rate hikes on their financial situation is consistent with the changes in the components of bank profitability up to the fourth quarter of 2022 (latest available data from supervisory banking statistics). Banks’ BLS replies, covering the period up to the first quarter of 2023, suggest a continuation of these developments. In particular, the negative volume effect is in line with the substantial weakening of loan and deposit dynamics over the past six months. In addition, euro area banks reported a negative impact of the ECB interest rate decisions on profitability via their non-interest income (net percentage of -11%). This is owing to both capital losses (net percentage of -12%), reflecting losses in banks’ securities portfolios in the context of rising interest rates, as well as net fee and commission income (net percentage of -13%). Banks have also indicated a dampening impact of the ECB rate hikes on profitability via higher provisioning needs and impairments (net percentage of banks at -9%) over the past six months, which may reflect higher credit risks associated with a weakening impact of monetary policy tightening on economic activity and a rising interest burden of borrowers.

Chart 21

Impact of ECB interest rate decisions on euro area bank profitability

Notes: The net percentages refer to the difference between the sum of the percentages of banks responding “increased considerably” and “increased somewhat” and the sum of the odds of banks responding “decreased somewhat” and “decreased significantly”. The dashed bars denote expectations indicated by banks within the present spherical.

Euro space banks anticipate the largely related impacts of the ECB key rate of interest choices on the elements of financial institution profitability over the subsequent six months, aside from capital losses, which banks anticipate to be decrease. Banks anticipate the same optimistic impression of the ECB’s rate of interest choices on their web curiosity margins (web proportion of fifty%), which can assist their web curiosity revenue (45%) and general profitability (39%) regardless of the unfavorable quantity impact (web proportion of -16%) over the subsequent six months. By distinction, the dampening impression of the ECB rate of interest hikes through capital losses is anticipated to turn out to be smaller (web proportion of -3%) whereas the dampening impression on banks’ profitability through greater provisioning wants and impairments is anticipated to stay related (web proportion of -8%).

See extra.

Postal tackle 60640 Frankfurt am Main, Germany
Telephone +49 69 1344 0
Website www.ecb.europa.eu

For particular terminology please discuss with the ECB glossary (available in English solely).

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