ECB, easier granting of home loans

The credit standards (contractual conditions, approval criteria, internal guidelines) yes stiffen slightly for them businesseswhile recording a loosening regarding the concessions of mortgages for the purchase of a house, given the existing competition and the high interest rates charged by the banks. The latest one reveals it quarterly survey of the European Central Bankconducted by the Eurosystem between 29 February and 15 March 2024 on a sample of 157 banks.

Credit conditions

The survey highlights that, in the first quarter of the year, there was a slight tightening of standards credit with regards to loans to businesses: the net percentage decreased to 3% from the previous 9%.

PFor the first time since the fourth quarter of 2021, instead, banks reported a moderate relaxation of their standards credit with regards to loans to families for the purchase of a house (net percentage at 6%), while the criteria for consumer credit and other loans to families have tightened further (net percentage at 9%).

What factors influenced the standards

There risk perception it is the element that has continued to exert the greatest restrictive pressure on all categories of loans (businesses, home mortgages, consumer credit), while the competition between banks, especially the real estate mortgage sector, and the risk tolerance demonstrated by credit institutions have contributed to a loosening of credit standards.

The application for loans

Banks have reported a decline in demand for loans or use of credit lines by businesses in the first quarter of the year, and a slight decline in demand for mortgages by families. Demand for consumer credit and other loans to families, however, was essentially stable.

As has happened in recent quartersthe increase in interest rates, as well as the reduction in fixed investments for businesses and lower consumer confidence, have put a brake on the demand for loans. A trend that contrasts with the stabilization expectations previously formulated by the banks.

Expectations for the 2nd quarter

For the second quarter of 2024, the banks expect moderate tightening of credit standards for loans to businesses and stable credit conditions for loans to households.

As regards demand, credit institutions expect a moderate decline in the demand for loans to businesses and an increase in the demand for loans to families in the second quarter of 2024.

Quantitative Tightening and TLTRO III

The ECB Quantitative Tightening (QT).i.e. the reverse process of Quantitative Easing, which consists in the reduction of the stocks of previously acquired activities is having a negative impact on the financing conditions and liquidity positions of banks, resulting in a moderate tightening of terms and conditions and a negative effect on loan volumes.

Euro area banks also indicated that the phasing out of the third round of targeted longer-term refinancing operations (TLTRO III) continued to have a negative impact on banks' liquidity positions.

A positive impact has been exercised, in the last six months, by ECB decisions on interest ratesalthough the impact is expected to decline and reverse over the next six months.