FRANKFURT (Reuters) - Euro zone banks expect further increases in loan demand in the fourth quarter but anticipate that the European Central Bank’s policy shift will lead to a deterioration in market financing conditions, the ECB said in a survey of lenders on Monday.
Banks still see a positive impact on liquidity from the ECB’s 2.6 trillion-euro asset purchase scheme but, in a major change from previous surveys, they now expect a worsening of market financing conditions as the ECB halved the bond buys in October and plans to end them in December.
Buying piles of public and private bonds over the past three years, the ECB has pushed borrowing costs to record lows, stimulating lending, even if more slowly than policymakers initially hoped.
With lending growth at its highest since the bloc’s debt crisis, the ECB has been dialing back stimulus and plans to end its asset-purchase scheme in December, arguing that the recovery is sufficiently strong to continue with reduced support.
“Over the next six months, euro area banks expect the asset purchase program to continue to have a positive impact on their liquidity positions, albeit to a lesser extent than in the past, but they also expect it to contribute to a deterioration in their market financing conditions,” the ECB said.
It added that its negative deposit rate will continue to weigh on banks’ net interest margins.
Credit standards — internal guidelines or loan approval criteria — are expected to be broadly unchanged for business loans while banks see easing standards for housing loans and consumer credit, the ECB said in a report scheduled for release on Oct. 23 but published a day early.
Credit standards in the third quarter eased further for business loans as expected but lending criteria for mortgages eased less than earlier predicted, the ECB said, based on a survey of 147 banks.
“For loans to enterprises, competitive pressures and lower risk perceptions were the main factors contributing to an easing of credit standards,” the ECB said. “Those two factors also contributed to an easing of credit standards on housing loans, albeit less so than in the second quarter of 2018.”
The ECB added that financing costs and balance sheet constraints had a broadly neutral impact on credit standards for business loans and mortgages.
Reporting by Balazs Koranyi; Editing by Robin Pomeroy