Bank Lending survey: banks are expecting decline in demand

Statistical News Release
Date 1 February 2012
In the fourth quarter of 2011, a small proportion of banks in theNetherlandsslightly tightened their credit standards for loans to enterprises (net 14% of banks, see Chart 1).

This is apparent from the ECB’s latest quarterly Bank Lending Survey. Whereas most Dutch banks in the survey maintained their credit standards, a few tightened them.

Creditstandards companies

Several underlying factors influence banks’ credit standards. Banks indicate that their risk perception of the general economic activity and that of the prospects for the industry or specific enterprises did not change over the last quarter. They also stated that their liquidity position was no reason for tightening or easing. On the other hand, a majority of banks (net 14%) stress that they have difficulty raising funds on the money and capital markets. At the same time, part of the banks (net 29%) perceived more risks with respect to the collateral required for corporate financing in the last quarter of 2011. At the same time, the institutions report that the competitive pressure from other banks in the fourth quarter contributed to a relaxation of the standards (net 29%). This general picture of stabilised credit standards with a slight tendency towards tightening also manifests itself in several specific terms and conditions. Banks note that in the fourth quarter they did not in essence change the size of loans and credit lines. The same applies to collateral requirements. For the riskier loans, a number of banks did increase their margins (net 14%). In contrast, net 14% of banks reduced their margins on loans with an average risk, in particular for small and medium-sized enterprises (SME).

In the fourth quarter, banks observed a moderate increase in the total demand for corporate loans. Still, with respect to SME, net 17% of banks report a decline in demand. For the first quarter of 2012, net 43% of banks expect a fall in demand for loans from large and smaller enterprises alike.

Compared to the third quarter, banks in theNetherlandsdid not further tighten their credit standards for residential mortgages in the fourth quarter. This follows a long period of tightening as a result of the outbreak of the sovereign debt crisis, the consequently higher solvency requirements of BaselIIIand the tightened code of conduct for residential mortgage lending introduced in mid-2011.

Although the credit standards were not tightened, most banks (net 33%) indicate that one of the underlying reasons for adjusting these standards, namely the housing market prospects (see Chart), did necessitate tightening.

Creditstandards residential mortgage

At the same time, banks comment that factors such as  costs of funds and balance sheet constraints did not constitute reasons for tightening the standards. Banks indicate that they increased their margins on the riskier residential mortgage loans in the fourth quarter. In addition, net 17% of banks to some extent tightened the conditions for loan-to-value ratios, which had already been sharply adjusted in the third quarter (code of conduct). The demand for residential mortgage loans observed by banks declined according to most institutions (net 57%); this is also expected to be the case for the current first quarter.