Statistical News Release: “tightened credit standards for corporate loans and residential mortgage loans”

Statistical news
Datum 14 juli 2020

In a survey distributed by DNB, Dutch banks report that they tightened the credit standards for corporate loans and residential mortgage loans in the second quarter of 2020. In the next three months they expect to tighten these standards even further. This is shown in the results of the latest Bank Lending Survey (BLS), in which banks express their views about developments in credit standards for loans. The banks are anticipating the expected impact of the coronavirus crisis on the economy, which causes an elevated credit risk for the banks. The banks’ actual lending figures for the months up to and including May 2020 suggest that corporate lending is stabilising. (See the Key indicators monetary statistics table on DNB's website).

Reversed trend in credit standards for corporate loans and mortgage loans

The BLS is a three-monthly qualitative survey in which seven Dutch-based banks (representing 89% of total Dutch banking assets) express their views about the credit standards they applied in the last quarter and their expectations for the coming quarter. The most recent BLS reference date is 1 July 2020. Developments in credit standards are expressed as a net percentage indicating the difference between the percentage of banks that tightened credit standards and the percentage that eased them. The answers are weighted according to the market share of the banks. The responses by the banks in the BLS only reflect the direction and expectations regarding credit trend developments, but not their exact extent. The figures do not indicate the actual size of lending either.

A significant majority of the banks said they tightened the credit standards for all types of new corporate loan applications in the second quarter of 2020 (Figure 1), while they repeatedly eased them over the previous 18 months. Most banks expect a further tightening of credit standards in the third quarter.

According to Dutch banks, their risks perception has increased while their risk tolerance has declined, in terms of the general and sector-specific economic situation and outlook as well as in terms of borrowers’ credit status. These developments are related to the adverse economic impact of the coronavirus measures, which contribute to an increase in overall risk for banks in the longer term.

Other euro area countries do not report such a pronounced tightening of credit standards, however. In Germany, a minority of the banks participating in the BLS reported a tightening of credit standards. Banks in France, Spain and Italy, on the other hand, have eased credit standards for corporate loans in the second quarter of 2020. (See the ECB Bank Lending Survey for 2020 Q2).

The Dutch banks also report a tightening of the credit standards for residential mortgage loans in the second quarter of 2020, again citing a higher risk perception as the main reason. This means the ongoing easing of credit standards reported in the past three years has come to a halt. Most banks expect a further tightening of credit standards in the next quarter.

Source: Bank Lending Survey. The chart only indicates the direction in which credit standard trends develop and whether this development is experienced by multiple banks. It does not reflect the extent to which standards have been tightened or eased.

Increased demand for corporate loans from SMEs, less demand from large companies

In the BLS, Banks reported a difference in demand for corporate loans between SMEs and large companies for the second quarter of 2020 (see Figure 2). While demand increased sharply for both SMEs and large companies in the first quarter of 2020, demand from large companies went down in the second quarter. According to the banks, this is the result of lower fixed investments and postponed M&A activities. The fact that large companies have better access to the capital market may also have played a role. (See ECB data on gross issues of debt securities by non-financial corporations in Netherlands).

Demand for corporate loans from SMEs also increased in the second quarter. According to the banks, this can be explained by rising expenses for inventories and working capital, and renegotiation and restructuring of existing loans. This is also related to the coronavirus measures, which have led to higher liquidity needs among businesses.

Banks expect to see similar developments in the third quarter, although a smaller proportion of them expect a further decrease in demand from large companies.

Source: Bank Lending Survey. The chart only indicates the direction in which credit demand trends develop and whether this development is experienced by multiple banks. It does not reflect the extent to which demand for credit has increased or decreased.

Demand for residential mortgage loans flattens, demand for consumer credit drops

According to Dutch banks the demand for residential mortgage loans levelled off in the second quarter of 2020 (Figure 3), in contrast to the continuing increase in demand for mortgage loans observed in the past three years. Most banks also expect demand for residential mortgage loans to decline in the third quarter of 2020.

A large majority of participating banks said they experienced a drop in consumer credit demand in the second quarter of 2020 (Figure 3). The decrease in demand can be explained from reduced spending on consumer durables and lower consumer confidence levels. Most banks expect the demand for consumer credit to drop further in the third quarter of 2020.

Source: Bank Lending Survey. The chart only indicates the direction in which credit demand trends develop and whether this development is experienced by multiple banks. It does not reflect the extent to which demand for credit has increased or decreased.