Eurozone: Bank loans demand increases as standards continue to be loosened - ING

Teunis Brosens, Senior Economist at ING, explains that as competition between lenders intensifies, standards are relaxed further and as a result of which loans to finance business investment are finally in increased demand in Eurozone.

Key Quotes

“The ECB’s bank lending survey shows increasing demand for loans across the board in 2Q17. For businesses, M&A activity remains an important driver to take out bank loans. As a sign of continuing economic buoyancy, businesses increasingly demand loans to finance new investment plans.”

“Demand for mortgages increased for the 13th quarter in a row, with households confident about housing market prospects and taking advantage of low rates.”

“Banks further relaxed credit standards on mortgages and consumer loans in 2Q17, as competition between lenders intensifies and perceived risks diminish. For businesses, standards were on balance relaxed slightly in Q2, after a minor tightening in 1Q17. Again competition is the main driver here.”

“Today’s bank lending survey data show that it’s “all systems are go” as far as bank lending is concerned. For the Eurozone as a whole, the time when bank lending acted as a brake on the economic recovery, lies comfortably behind us. The ECB’s monetary policies, in particular its TLTRO operations providing long-term funds to those banks that needed it, have certainly helped. 63% of banks surveyed reported that they participated in the fourth and final TLTRO-II operation. 61% of participating banks used the TLTRO-funds obtained to finance loans, mostly to businesses.”

“With the Eurozone cyclical recovery going strong and the bank lending channel mostly unclogged, the floor is clear for Draghi to tip-toe slowly in the general direction of the exit on Thursday.”