7 FEBRUARY 2012

A larger proportion of banks, 35% contributed in tightening their credit standards to Non Financial Companies (NFCs) in the fourth quarter of last year, up +16% compared with the previous quarter and in higher number than anticipated according to the European Central Bank (ECB) January 2012 Quarterly Bank Lending survey. Loans to households for house purchase met a similar fate as 29% banks admitted to performing a credit squeeze, +18% on the same period, followed by consumer credit, although to a lesser extent +10%.

Credit lending criteria are expected to tighten further this first quarter, for each long-term loans and large companies as well as households.

In Q4/11, a higher number of Euro area banks surveyed tightened the approval of loans to large companies, 37% compared with 13% in Q3, and Small and Medium Enterprises (SMEs) were affected as well, although to a lesser extent, 25% (compared with 10%). The number of banks applying tighter credit standards on short-term loan applications surged threefold to 21% and for long-term loans twofold to 33%.

Among factors affecting credit lines to companies, banks perception of risk jumped compared with the previous quarter and rated the highest as 40% surveyed paid attention to  « expectations regarding the general economic activity »  followed by 30% as regards « industry or firm specific outlook ». Banks « own cost of funds and related balance sheet constraints » ranked third as 28% picked their « banks ability to access market financing » as a main credit lending criterion.  For 20% banks surveyed, recapitalization obligations and sovereign debt exposures remained major factors into tightening their credit standards. The perception of risk about each large companies and SMEs rated equal for banks but debt restructuring remained a major lending criterion unlike competition from other banks, a non-issue among financial institutions. 
 
Overall, a higher proportion of banks, 44%, selected « margins on average loans » as their main lending criterion compared with 18% in Q3/11 and nearly half of all financial institutions surveyed or 49% took into account their margins on « riskier loans » as a loan approval indicator. The size of the loans or the credit line ranked third. Large companies, compared with SMEs, were affected the most by such lending decisions.  Loan applications from both large companies and SMEs « increased somewhat » for 17% banks surveyed in the last quarter, up two percentage points, compared with the previous quarter, but demand from large companies increased the most, 16% (compared with 10% in Q3/11) and equally for long-term loans 21% (13% in Q3).