Euro area: loan demand continues to increase

• The ECB’s bank lending survey for October 2014 showed that credit standards for all loan categories (consumers, enterprises and housing) were eased again. This was also the case in the previous quarter, which was the first time since 2007. Nevertheless, it has to be kept in mind that the level of credit standards is still relatively tight in historical terms.

• The survey also showed that loan demand continued to increase in all loan categories. Looking ahead to the next quarter, banks expect a continued increase in demand across the loan categories.

• For loans to enterprises the increase in loan demand was supported by other financing needs, whereas financing needs related to fixed investment dampened demand for loans. This is likely to be related to the recent weakness in activity in the euro area and in particular in Germany.

• After the ECB's Asset Quality Review and stress tests showed that supply side constraints on credit growth should be limited, it is very important that demand for credit and loans continues to increase. Although the financing needs related to fixed investment dampened demand for loans to enterprises, we continue to see the soft economic data as temporary and we expect the recovery to strengthen again in 2015. This should also lead to higher demand for loans and in this scenario the better credit supply conditions should be supportive for credit growth and the economic recovery. For more see ECB comprehensive assessment: capital shortfall less than expected and Euro area: still positive signs from bank lending and money supply, both published on 27 October 2014.

• After the ECB's Asset Quality Review and stress tests showed that supply side constraints on credit growth should be limited, it is very important that demand for credit and loans continues to increase. Although the financing needs related to fixed investment dampened demand for loans to enterprises, we continue to see the soft economic data as temporary and we expect the recovery to strengthen again in 2015. This should also lead to higher demand for loans and in this scenario the better credit supply conditions should be supportive for credit growth and the economic recovery. For more see ECB comprehensive assessment: capital shortfall less than expected and Euro area: still positive signs from bank lending and money supply, both published on 27 October 2014.

Questions regarding the impact of the TLTROs in the bank lending survey

• The October 2014 bank lending survey included questions about the ECB’s TLTROs and the impact of it.

• Of the banks participating in the survey 44% took part in the first initial TLTRO in September. Regarding the TLTRO in December, 47% of the banks plan to participate, whereas 29% are still undecided.

• Banks not participating in the September TLTRO did not take part because of an absence of funding constraints. This applied to around two thirds of the banks not participating or not intending to participate in the two initial TLTROs. Of the banks 20% said they were concerned about insufficient loan demand but going forward it was less frequently cited for foreseen non-participation in the upcoming TLTROs.

• Banks reported that they would primarily use the funds obtained from the TLTROs for granting loans, in particular loans to enterprises, and to a lesser extent for refinancing purposes. Only a minority of banks mentioned the purchase of assets. Moreover, both for the initial TLTROs and the additional TLTROs banks reported an intention to use the funds for substitution of funds from other Eurosystem operations and for refinancing maturing debt.

• See more about our view on the macroeconomic impact of the TLTRO in ECB easing – will it work? #4 Impact on growth and inflation, 28 August 2014.