Banks promise easing of credit conditions in support of the real economy

Jean-Claude Thébault, Director General of the Bureau of European Policy Advisers (BEPA), and Margaritis Schinas, Deputy Director General of the BEPA, participated in the seminar on Public Investment Banks, which was organised in Brussels by the BEPA. In the rostrum, Jonathan Faull, Director General of Commission’s DG “Internal Market and Services”. (EC Audiovisual Services).

According to European Central Bank’s quarterly bank lending survey, euro area lenders responded that during the fourth quarter of 2013 they plan a marked easing of credit standards on loans to enterprises (-5% after +5%), “which is the first such a positive expectation on record since the fourth quarter of 2009”. The ECB says that the sample group of banks participating in the survey “comprises 133 banks, representing all of the euro area countries, and takes into account the characteristics of their respective national banking structures”. The bank lending survey was published yesterday.

It must be noticed that the questions asked by the ECB refer to credit tightening conditions. All percentages are the sum of positive and negative responses. In view of this, positive figures depict tightening, while negative percentages mean net easing of credit conditions. The main conclusion of the survey is that “Across all loan categories, the net tightening of credit standards in the third quarter of 2013 stands below historical averages, calculated over the period since the start of the survey in 2003”. Obviously, this means that banks are still holding back their loan offers to the real economy but not as much.

A better fourth quarter

For the sake of comparison it must be mentioned that the survey concluded that a net percentage of banks reporting a tightening of credit standards on loans to enterprises “stood at +5% in the third quarter of 2013, after +7% in the second quarter”. This means the net betterment foreseen for the fourth quarter of this year will be a whole 10% (from -5% to +5%) compared to the third quarter and 12% (from -7% to +5%) in relation to the second quarter.

If the banks are sincere in their responses to ECB’s questions, then the real economy should expect a noticeable net betterment in credit conditions during the next months. Of course, the survey’s results are about averages, while on country-level the bleak image doesn’t seem to change. Actually, in countries like Greece, the net worsening of credit condition is still ranging freely and the overall loan balances to the private sector continue to shrink.

However, the October 2013 ECB’s bank lending survey confirmed that overall in Eurozone there is “an on-going stabilisation of credit conditions for firms and households, while the demand for loans is still weak”. Remaining in the side of averages, during the third quarter of 2013 the net percentage of banks reporting a tightening of credit standards for housing loans to households, declined noticeably to 3%, from 7% in the second quarter of 2013. As for developments in consumer credit, standards were tightened marginally from the moderate easing recorded previously (increasing to 1%, from -2% previously).

Demand for loans

As for loan demand, euro area banks continued to report a net decline in inquiries from enterprises during the third quarter of this year. However, according to the findings of the survey, the retreat of loan demand by the business sector receded in the third quarter in relation to the previous one (-12%, from -18%), “thereby approaching the historical average for this indicator”. According to the same source, loan demand for housing marked an increase “to 5%, from -2% in the second quarter of 2013, for the first time since the fourth quarter of 2010″. This is a level well above historical average. Turning to the demand for consumer credit, it “turned marginally positive in the third quarter of 2013 (1%, after -7%)”, again to a level which is above historical average.

Overal, for the fourth quarter of the year, “banks expect in net terms an increase in demand across all loan categories”. Obviously, if banks’ predictions for an increased loan demand during the next months and their estimates about their own ability to respond positively to that prove right, the real economy should expect a noticeable betterment of demand for goods and services.