Banks report increased demand for corporate loans

This appears from the latest Bank Lending Survey (BLS), held between 27 March and 3 April 2020. The BLS is a three-monthly survey in which seven Dutch-based banks report their assessments on the credit they provided in the last quarter and express their expectations for the next quarter. The most recent BLS reference date is 1 April. Demand development is expressed as a net percentage indicating the difference between the percentage of banks that observe an increasing demand and the percentage that observe a decreasing demand. The answers are weighed according to the market share of the banks. The responses by the banks and the BLS results only reflect the direction of developments and expectations, but not their exact extent.

Demand for corporate loans increases

At the beginning of the year, banks indicated they expected a decrease (-18%) in demand for loans and credit lines to businesses in the first quarter of 2020. In retrospect, however, they now report increased demand for corporate loans in the first quarter (+72%). They say the increase is mainly due to outlays related to stocks and working capital and to demand related to the renegotiation and restructuring of existing loans. This is also related to the coronavirus measures, which have led to higher liquidity needs among businesses. Almost all responding banks said they also expect increased demand for corporate loans (+98%) in the second quarter, especially for short-term loans and loans to small and medium-sized enterprises.

Credit standards for corporate loans eased in the first quarter

Banks on balance also said they eased credit standards for new corporate credit applications in the first quarter of 2020 (-24%). The trend in credit standards is expressed as a net percentage indicating the difference between the percentage of banks that have tightened credit standards and the percentage that eased them, weighted by the banks’ market shares. A positive net percentage means a net tightening, whereas a negative percentage reflects a net easing.

Banks on balance also said they eased credit standards for loans to small and medium-sized enterprises in the first quarter of 2020 (-6%). Likewise, responding banks said they also expect to ease standards for these loans in the second quarter (-14%). Their expectations also apply to short-term loans (-14%), which may well be related to the Dutch government's support measures.

In terms of overall lending, banks on balance expect to tighten credit standards in the second quarter, which applies mostly to longer-term loans (+97%) and loans to large corporates (+95%). This could be related to the expected negative economic impact of the coronavirus measures and the banks’ efforts to help customers deal with drying up liquidity, which will increase the banks’ overall long-term risk.

Lower demand for mortgage loans expected

Over the past six months, the banks’ expectations were in line with the actual trends in household demand for mortgage loans they subsequently reported. For the first time since the second quarter of 2013, however the banks are expecting lower demand (-37%) in the coming three months. This may also be related to the current uncertainty surrounding the duration and the economic impact of measures aimed at curbing the spread of the coronavirus.

Source: Bank Lending Survey. Notes: Demand in the past three months reflects quarterly figures based on the banks’ answers given at the end of the quarter. The development in expectations was measured against the banks’ answers given in the preceding quarter.