In the first quarter of 2016, German credit institutions adjusted their lending policies in the three surveyed lines of business (loans to enterprises, loans to households for house purchase, consumer credit) in a variety of ways, as is revealed by the latest Bank Lending Survey (BLS) conducted among banks domiciled in Germany.

On the whole, enterprises found it easier to borrow funds; credit standards for loans to enterprises were eased somewhat on balance. In addition, credit institutions narrowed margins, especially for average-risk loans. Banks showed themselves more restrictive, however, in their loans to households for house purchase. Given the entry into force of the Act Implementing the Mortgage Credit Directive and Amending Commercial Rules (Gesetz zur Umsetzung der Wohnimmobilienkreditrichtlinie und zur Änderung handelsrechtlicher Vorschriften) with effect from 21 March 2016, institutions tightened their credit standards considerably on balance. As regards margins, the surveyed banks, by contrast, saw little need for any adjustments. Credit standards in the consumer credit segment remained virtually unchanged on balance. At the same time, there was an expansion of margins on average loans in this line of business.

According to the information provided by German banks, demand for loans grew in all surveyed business areas, as was the case in the last three surveys. However, enterprises’ funding requirements were no longer growing quite as dynamically as they had been as recently as the previous quarter. By contrast, demand for loans to households for house purchase showed accelerated quarterly growth after only inching upwards in the preceding three-month period. Growth in demand for consumer credit remained nearly unchanged compared to the fourth quarter of 2015.

The April survey contained additional questions on participating banks’ financing conditions, on the level of credit standards, the impact of the Eurosystem’s expanded asset purchase programme (EAPP) and the consequences for credit business of the negative interest rate on the Eurosystem’s deposit facility. As in the previous quarter, German banks reported a further slight improvement in their funding situation against the background of the situation in the financial markets. The current credit standards for loans to enterprises and consumer credit are at an average level relative to the midpoint of the range set by their credit standards since the second quarter of 2010, whereas the standards for loans to households for house purchase are somewhat tighter than the benchmark. The banks reported that the Eurosystem’s EAPP had improved their liquidity position and their funding conditions. The liquidity increase, which was used for lending, amongst other things, was almost exclusively the outcome of bank customers’ portfolio shifts towards bank deposits and not of the banks’ own sales of securities. However, the German banks taking part in the survey also reported on a broad front that the programme was exerting pressure on their net interest margins and thus placing a strain on their profitability, with the negative interest rate on the deposit facility also making a considerable contribution to a decline in banks’ net interest income over the past six months. Owing to the negative deposit rate, lending rates and margins in all surveyed business lines fell, whereas the volume of loans to households went up slightly.

The aggregated results of the Bank Lending Survey for the euro area as a whole show a slight easing of European institutions’ lending standards for loans to enterprises and a marginal easing of standards for consumer credit. However, credit standards for loans to households for house purchase showed a slight tightening.

In the assessment of the surveyed euro-area institutions, demand for loans to enterprises was up perceptibly in the first quarter, yet the pace of acceleration was somewhat more subdued than it was as recently as the preceding quarter. The surveyed institutions reported increased demand for loans to households as well. Demand for loans to households for house purchase accelerated faster than for consumer loans.

The surveyed euro-area banks’ funding situation varied in the first quarter of 2016 depending on the individual funding instruments being surveyed. Whereas, for one thing, access to the bank debt security market deteriorated, institutions active in securitisation business reported an improvement. Relative to the midpoint of the range of credit standards they have been applying since the spring of 2010, European banks have been assessing the current level of their credit standards for loans to enterprises as similarly restrictive and that of standards for lending business with households as somewhat more restrictive. In the past six months, the EAPP met with somewhat greater interest in the rest of the euro area than in Germany. Much as in Germany, the programme brought about an improvement in the liquidity position and financing terms of euro-area banks. At the same time, European institutions also reported strains on their profitability. The participating euro-area banks reported that they were using the added liquidity primarily for lending. The responses provided by European banks to the question about the impact of the negative interest rates on the deposit facility were similar to those given by German institutions. In the euro area, too, the negative interest rate on the deposit facility contributed to a considerable decline over the past six months in net interest income and lending rates in the three lending categories surveyed. It was only with regard to the non-interest rate charges that European banks, unlike their German competitors, reported an increase in the past six months with a view to stabilising earnings.