Bottom line
 
The latest ECB survey of bank lending (published yesterday) found that there had been some increase in the proportion of senior bank loan offiers reporting that credit standards had been tightened during the past three months. For enterprises the net percentage rose from +3% in Jan. and Apr. 10 to +11% in Jul., while for housing loans the percentage remained at +10%. A summary of the findings can be seen in the charts at the end of this note.
 
- The ECB norted that the tightening of standards was related "to the deterioration of banks' own balance sheet situation, particularly as regards their liquidity position and access to wholesale funding". The ECB also obseved that "negative spillover effects from the sovereign debt crisis appear to have worsened banks' ability to obtain funding". As well, we can note that the net percentage reporting higher loan standards in the past three months was higher than the previous survey's expected diffusion balance, also suggesting that loan officers were influenced by wholesale market developments.
 
- That said, the net percentage corersponding to expectations of future tightening during the next three months continued to be only slightly positive (at +4 according to our aggregate, vs. +2% previously, and similar to earlier quarters also) - suggesting that loan officers were not expecting the future trend of tighter loan standards to be so significant as had been the case recently.
 
- It is worth noting that the survey was conducted during 14 June and 2 July, i.e. at a time when parts of the banking sector were experiencing market stress. As well, on a more optimistic note, the survey shows that perceived demand for enterprise and household loans has moved into positive territory (based on our aggregate series), the best position since Jan. 07. This improvement is especially striking for German loan demand. Banks are also fairly optimistic that future loan demand will remain positive, though again more so for Germany than elsewhere.
 
- Overall, yesterday's survey has been overshadowed by the release of the stress tests last Friday. It shows in particular that the German credit situation has been improving, particularly as demand (and the economy) have recovered, and the data are consistent more generally with evidence of an improvement in housing loan expansion (from Monday's M3/MFI release). Taken in conjunction with the results of the stress tests and recent financial market behaviour, the Governing Council is likely to interpret the developments as reasons for maintaining pressure on governments to push through recapitalisation, restructuring and consolidation of banks that are especially dependent on ECB financing, in order to create the conditions for the ECB to move back, gradually and  over time, to more normal market operations.
 
 
In detail

Enterprises
 
The net percentage of banks reporting tighter credit standards to firms rose to 11% in the July survey from 3% in April. The factors behind this were said by banks to be access to market financing and bank liquidity positions.

Perceived loan demand continued to become much less negative, with the diffusion balance close to zero (-2%), having been at -13% in the April survey. The improvement was especially strong for Germany, where the balance went from -8 to +19%; outside of Germany we calculate that the balance moved from -14 to -7%. Behind this improvement was said to be a less-negative outlook for business investment, where the overall euro area balance moved from -32% to -23% (while for Germany the series went from -24% to +8%).
 
 
Households
 
Concerning lending standards for housing loans, the euro area balance was again at 10%, the same as in the April survey, and compared with 3% in the January survey, suggesting some further gradual tightening in standards. German banks, however, reported no tightening in standards, whereas ex euro area banks had a balance of +14%, up from +10% in April and +2% in January.

The balance corresponding to expectations of future tightening of credit standards for housing loans was marginally positive at +3 (similar to the prior two quarters), though the German series moved down from zero in April to -14%, signalling a net loosening of standards (while outside of Germany we calculate that the net balance rose to +9% from +3% the prior few quarters).

Demand for housing loans was reported to have increased significantly, however, with a net balance of 24% - the highest since Jan 06 for the euro area. The series improved particularly for Germany (where it has been volatile, from +45% in Oct 09 to zero in Jan 10 then -27% in Apr 10, with +41% for Jul 10). Meanwhile, our calculation of this series for the euro area ex Germany improved from +8% in Apr to 18% in Jul.

There was also some gradual improvement in perceptions of the housing market's prospects, with the euro area net percentage rising back to 9% in July from 3% in April (and 8% in Jan.), bolstered by the German reading rising from +9% to +18%. The balance corresponding to bankers' expectations of future housing loan demand in the euro area moved back to +5% from +21% in April (and +22% in January), though the German series was very positive at +45% (from 36% in April and 14% in Jul, Oct 09 and Jan 10). Hence this decline was very much reflecting a more negative assessement outside of Germany.

For consumer credit and other lending, lending standards continued to tighten in the euro area in July, with a net balance of 11% again reported for July (same as for April, and similar to the January and October readings). The net balances representing demand for consumer credit and other lending also improved at the euro area level from -13% in April and -10% in Jan to +1% in July. Meanwhile, bank perceptions of spending on durable consumer goods came out with a net balance of +2% in July, vs. readings of -6 to -7 in prior months. The percentage balance corresponding to banks' expectations of consumer credit demand deteriorated to -6% from +2 in April.

source: BarCap