July 30, 2012
Lending standards of euro-area banks were left broadly unchanged in Q2 2012 according to the latest BLS. A net 10% of banks reported tightening for corporate loans vs. 9% in Q1; for mortgage loans, the figure was 13% as compared to 17%. There is still a substantial dispersion across countries, though, e.g. between German and Italian banks. The general economic outlook rather than funding conditions remains the main driver for lending standards. More pronounced are the figures on loan demand (for corporate loans: -25% vs. -30% in Q1) where banks continue to report significant falls. Looking ahead, banks expect to see a similar degree of net tightening in Q3. Interestingly, German banks expect to gradually converge to tightening conditions in the euro area as a whole, even though German banks’ expectations for loan demand are still more optimistic.
One explanation for the relatively benign results could be that the cut-off date (Jul 5) for the BLS was before the latest escalation of the sovereign debt crisis. A further explanation is that substantial tightening had already occurred in Q4 2011. Another cause, supported by the survey data, is that given weak loan demand and recent successes in bolstering capital ratios banks are not constrained, even if funding conditions remain difficult. Regarding the macroeconomic impact, a positive factor is that tightening is less pronounced for SMEs than for large caps, which have direct capital market access as an alternative to bank loans. Another macro aspect: unlike the weak PMI readings the benign BLS findings do not provide support for more ECB easing in the immediate future.
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