Banks more flexible for enterprises, tougher on mortgages

Banks indicate that the ongoing relaxation applies especially to large enterprises. No change was reported during the first quarter in the – previously somewhat relaxed – policies for loans to small and medium-sized enterprises . The relaxation concerns both short-term and long-term loans.

The relaxation comes against the backdrop of a declining but still moderately positive growth of corporate lending, as indicated by the banks in the survey. The same picture emerges from the latest data on the development of lending (an increase in March by 2.1% compared to the previous year; see the link below to the chart on corporate lending).

The survey also shows that banks are relaxing the standards for approval of loans very gradually instead of all at once. Although institutions have abandoned their tightening policy of the past three years, most are still in neutral gear, while only a few banks are moderately relaxing corporate credit standards.

As reasons for the relaxation, banks cite the fact that asset costs and balance sheet positions no longer form a restricting factor in acceptance policies. While banks do not consider their own liquidity position a limiting factor for issuing corporate loans, neither is it regarded as a stimulus. In addition, banks indicate that competitive pressure influenced lending policy. A net one third of banks experienced increasing competition from other banks in the first quarter. Finally, the majority of banks have a more favourable assessment of economic developments in the first quarter of 2011 than before. Net 29% report that this factor contributed to the relaxation observed (in the fourth quarter, this factor still had a negative impact on acceptance policy).

Most banks (net 43%) state their less stringent policy coincided with a lower margin on average corporate loans (compared to the fourth quarter). This applied mainly to the margin on loans to large enterprises (net 86% of banks report this). Banks also report some relaxation in relation to collateral requirements and maturity conditions they set for large enterprises.

For the first time since the crisis in 2007, a majority of banks have seen an increase in the demand for corporate loans. In the first quarter, net 14% of banks indicated this, but the spread in answers is large. Banks report that the increase in demand is especially coming from large enterprises (for instance, as a result of the increased financing need of enterprises for stocks and working capital). Most banks have not yet noticed an increase in the demand for loans from small and medium-sized enterprises.

Residential mortgages

Net one third of banks indicate that the standards for approval of residential mortgages were tightened in the first quarter (Chart 2). In their comments on this tightening of mortgage standards, net 60% of banks say that they see more risks with respect to the outlook for the housing market. Banks further state that they have changed the conditions for the approval of mortgage loans, for example through a small rise of the margins on risky mortgage loans and slightly tougher collateral requirements in the first quarter. In addition, credit conditions such as the loan-to-value ratio and the relation between income and (housing) costs of home owners are reasons for banks to tighten the reins when supplying new residential mortgages.

As for the past three years, banks note that demand for residential mortgages continued to decline in the first three months of this year. Net one third of banks indicated this. Most banks in their explanations point to the outlook for the housing market and consumer confidence.

The survey data are in line with mortgage growth, which has halved since 2008 (March 2011 3.3% compared to a year earlier) and reflect the strongly cooled-off housing market.