ECB’s stimulus measures continue to support bank lending - Rabobank

Elwin de Groot, Head of Macro Strategy at Rabobank, points out that the ECB’s Bank Lending Survey for April concluded that the central bank’s stimulus measures continue to support bank lending.

Key Quotes

“Loan conditions eased, while the lower interest rates continue to boost demand for credit. That said, the growth in credit demand did slow: demand from corporate borrowers was up ‘only’ 6%, as compared to 18% in the final quarter of 2016. Similarly, growth in credit demand by consumers slowed slightly.”

“Whilst the credit growth numbers are an encouraging indicator of the pass-through of ECB policy into the economy, the BLS also contained some warning signs of adverse effects on future policy effectiveness. Banks responded that the APP continues to contribute to their liquidity position and financing conditions, but that their profit margins are deteriorating at the same time.”

“In addition, more banks have indicated that they see negative impact from the sub-zero deposit facility rate on their margins. If this trend persists, this could ultimately limit banks’ capacity to make new loans, which could render ECB policy less effective. Although we argue here that we find it unlikely that the ECB will hike rates before the asset purchase programme has been wound down, it could mean that the ECB does not want to wait too long after QE has ended before it also ends the negative deposit rate policy.”