23/08/2011: July Banks Survey - Euro area credit supply - costs & controls

In the previous two posts I looked at the supply of credit to enterprises and the core drivers for changes in banks lending within the Euro area over the 3 months through July 2011. Here is a quick snapshot of what these changes mean on the ground.

The survey question this relates to is: Over the past three months, how have your bank's conditions and terms for approving loans or credit lines to enterprises changed?

• Bank margins on average loans to enterprises have tightened across 19% of the banks in 3 months through July 2011, while 18% of the banks reported easing of the average margins. Thus, overall margins remained largely unchanged across 57% of the banks - same as in 3 months to April 2011. However, in 3 months to April 2011, the percentage of the banks reporting easing of conditions on margins exceeded the percentage of the banks reporting tightening by 3 percentage points. This compares against zero percentage points differential in 3 months through July 2011 (note - these are adjusted percentages, compensating for respondents' errors).
• Number of the banks reporting tightening of margins on riskier loans exceeded numbers reporting easing by 23 percentage points in 3 months to July 2011.
• Non-interest rates charges have tightened in 2 percentage points more banks than eased
• Size of the loans granted tightened in 7% of the banks and eased in 3%, with 84% reporting no change in 3 months through July 2011.
• Collateral requirements have become tighter in 6% of the banks, while the requirements eased in 4%, suggesting de-accelerating rate of collateral requirements barriers growth.
  
• There was tightening of loans covenants reported by 9% of the banks and 6% reported easing. In previous quarter, the comparable numbers were 5% and 4%, implying tighter covenants are getting tougher.

While margins and non-interest rate charges are running at virtually no change since early 2010, there is a slight uptick in pressures in these credit costs. Collateral requirements remain on moderating tighter path, while riskier loans are posting second consecutive quarter of tightening of the margins.

Overall, these responses paint a mixed picture of costs of the bank lending to enterprises and suggests that market funding and capital and liquidity concerns drive banks lending dynamics in the Euro area, rather than costs and conditions structures.