Regulation / banks

Loan markets adjust for weakening growth – anticyclical capital buffer counterproductive

As the ECB’s current survey of Euroland banks shows, corporate demand for loans held steady in Q1 2019 and the banks also hardly changed their loan approval standards, if at all. By contrast, demand for private housing construction loans continued to grow thanks to the low interest rates and banks tightened their approval guidelines for property financing. The majority of banks also expect to see rising demand in both categories in the coming months. Although the proportion of optimists has edged up marginally since the January survey, compared to 2018 there has been a massive decrease in the size of the majority of credit institutes who believe in growing demand for loans. This is consistent with the growth trend in European loan markets, which has apparently reached its zenith. For corporate loans, this was the case as long ago as the end of September last year, when growth rose to…

Euroland: Slightly weaker growth in corporate loans in final-quarter 2018

According to figures from the European Central Bank, in 2018 corporate loans in Euroland grew just short of 4 percent. In other words, the rise in loans portfolios, after adjusting for sales, securitisation and fictitious cash pooling activities, slowed slightly in the fourth quarter of last year. However, the trend differed greatly from one country to the next. While corporate loans in Germany surged 6.4 percent, the highest rate in almost ten years, they actually fell in Spain. In France, growth in Q4 2018 slowed mildly, while it dipped appreciably in Italy. Loans to private households also developed unevenly, with the overall pace for Euroland picking up slightly to reach 3.3 percent. All in all, the trend last year was gratifying: The European loans markets, which suffered from 2012 to 2015 from a decline and/or weak growth, benefited from high demand for credit among corporations and private households alike. In…

Bank Lending Survey: European banks’ optimism waning, caution increasing

As the European Central Bank’s latest Bank Lending Survey (BLS) reveals, banks are optimistic as far as lending in the eurozone over the next few months is concerned. The majority of those polled expect increasing demand for both corporate loans and private mortgages. However, there are fewer and fewer optimists. With regard to corporate loans, only a tiny majority believe there will be growing demand. At the same time, banks are becoming more cautious in granting loans. Whereas in autumn 2018 the intention to ease lending guidelines prevailed, there is now a slender majority in both client segments in favour of tightening their credit guidelines in the next six months. German banks too are becoming less optimistic as regards the demand for loans, and caution is increasing. The results thus reflect the darkening mood in the past few months in terms of economic prospects. At the same time, they confirm…

Growing pressure on margins in the German banking sector

As part of the ECB’s Bank Lending Survey, German banks have for years repeatedly been reporting renewed pressure on margins in their corporate loans and private mortgage businesses. There is intense competition in both segments, causing the dissatisfactory trend for margins. The drivers behind the intensification of banking-sector competition are technical progress in the form of digitisation and extremely low interest rates. The growing competition is making itself felt above all in the fields of corporate banking and account management/payment transactions, less in deposits business. Because in banking there is very limited scope for product differentiation, competition tends to take place as regards the terms and conditions offered, which squeezes margins further. Service providers have the incentive to counter narrow margins by boosting business volume. Given the simultaneous restricted growth potential in the market as a whole, the battle for market share becomes all the fiercer as a consequence. While…

German banks: Rising risk aversion for property loans

As the current ECB Bank Lending Survey shows, a slender majority of banks in Germany intends in coming months to tighten their guidelines for approving property loans to private households. This is the first time since the European Mortgage Credit Directive was translated into law in Germany in spring 2016 that banks have declared such an intention. Back then the banks were responding with greater caution to the uncertainties resulting from implementing the directive. A key factor behind the current tightening of loan approval standards is the sharp rise in property prices in German conurbations. While there is no sign of a general property price bubble in Germany, in some regions there are increasingly excessive valuations for housing in various cities that give cause for concern. Furthermore, in some regions, mortgages have burgeoned. The current tightening to their loan approval guidelines some banks plan is an appropriate response to this…

Capital market yields on both sides of the Atlantic likely to tend moderately higher over the year

The European monetary watchdogs have meanwhile returned from their summer breaks and confirmed the direction of monetary policy. Starting in October, monthly bond purchases under the ECB’s asset purchasing programme (APP) are to be reduced to EUR 15bn, with net new purchases expected to be concluded by the end of the year. Even if this means that the European central bankers are taking another small step towards monetary normality, the monetary stimulus is still far-reaching. The ECB’s forward guidance shows that key interest rate hikes are not an issue for the time being. We only expect the ECB to allow the deposit rate to carefully head upwards over the year as a whole. We do not envisage the first „real“ interest rate hike being made before the end of next year at the very earliest. While the ECB monetary watchdogs are clearly finding it hard to seriously depart from their…

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