In the second quarter of 2017, German credit institutions adjusted their credit standards primarily by reducing margins. This is revealed by the latest Bank Lending Survey (BLS) conducted among banks domiciled in Germany.

Credit standards for loans to both enterprises and households remained virtually unchanged on balance. At the same time, the surveyed credit institutions narrowed their margins on average-risk and riskier loans across all areas of business, although the narrowing was most pronounced in the case of loans to households for house purchase. In addition, the banks also eased other credit terms and conditions in favour of their business clients.

In the assessment of German banks, demand for loans varied among the three areas of business surveyed. Demand for loans from small and medium-sized enterprises and in the consumer credit segment increased somewhat. By contrast, demand for loans from large firms and for loans for house purchase showed a slight decline.

The July BLS round contained ad hoc questions on the banks’ funding conditions, the impact of the new regulatory and supervisory activities (including the capital adequacy requirements defined in CRR/CRD IV and the requirements resulting from the ECB’s comprehensive assessment), as well as the banks’ participation in the targeted longer-term refinancing operations (TLTRO and TLTRO II). The German banks reported that, given the situation in the financial markets, their funding situation had improved slightly compared with the preceding quarter. Regarding the new regulatory and supervisory activities, the first half of 2017 saw the banks making a further reduction in their risk-weighted assets on balance and strengthening their capital position again. The fourth and final TLTRO II in March 2017 met with greater interest among the surveyed credit institutions than the previous TLTRO and TLTRO II. They stated that their participation was due to the attractive conditions of the operations. According to the information they provided, the borrowed funds were to be used chiefly for lending, in keeping with the objective of the monetary policy measure. Overall, the participating banks’ financial situation improved noticeably, although this had no impact on their credit standards.

In the euro area as a whole, the surveyed institutions left their credit standards largely unchanged in the case of both loans to enterprises and loans to households. In the assessment of the surveyed euro area institutions, demand for loans in the second quarter of 2017 showed a marked increase on balance in the case of loans to enterprises as well as in the area of loans to households for house purchase and consumer credit.

According to banks in the euro area, there was little change overall in the funding situation. In the wake of the new regulatory and supervisory activities, banks continued to strengthen their capital position in the first half of 2017. As was the case with the previous operations, the TLTRO II of March 2017 met with greater interest among the surveyed banks in the euro area as a whole than it did among the German institutions.