Euro area bank lending rates remained steady in the aggregate
02.02.12 14:32

Euro area bank lending rates remained steady in the aggregate, but widening divergences across the euro area

Summary  
 
The ECB data on lending rates charged by banks showed that, at the euro area level, interest rates up to December were remaining steady, though with some divergences across the major countries. Lending rates by German banks have been tending still to edge lower, whereas lending rates to non-financial corporations by Italian and Spanish banks have been moving up significantly. Such developments are unsurprising given market and funding conditions, but they are likely, as with yesterday's bank loan officer survey report, to reinforce the Governing Council's belief that the unlimited three year LTROs are warranted to help moderate the impact of asymmetric monetary transmission across countries.
 
In the following analysis, we unveil new aggregates which we have generated to indicate the path of lending rates to non-financial corporations. Whereas for new loans for house purchase the ECB and member central banks publish a weighted interest rate which includes charges (APRC - annual percentage rate of charge), there is no aggregate interest rate published for new loans to non-financial corporations at the euro area, nor for Germany and Spain. Therefore we have constructed an aggregate which is based on the outstanding levels of the constituent maturities which are published by the ECB, and which includes overdrafts (except for Spain, where there is a discontinuity in the series).
 

Lending rates for house purchase

The euro area aggregate remained around 4.0% in Dec. 2011; it has been close to this for most months since March (having hit a peak of 4.16% in Aug.). The euro area series is related to Euribor (see LH chart below), particularly for those markets where Euribor-based lending is very prevalent (such as Spain, Ireland and Portugal). Among the major countries, the Spanish series moderated slightly to 3.66% (from 3.72% in Nov and a peak of 3.75% in Oct.), whereas the French series was broadly steady (4.59%, vs. 4.61% in Nov. and 4.55% in Oct.). The German series, which is more influenced by long-term government bond yields (in keeping with the typical basis of mortgage contracts there), declined to 3.61% from 3.65% in Nov. and the recent cyclical high of 4.23%. In our view, the ongoing decrease in German mortgage rates, combined with the progressive and substantial decline in the German unemployment rate, are factors contributing to a probable ongoing improvement in the German real estate sector (which last hit a peak around 1995). Meanwhile, probably reflecting more adverse market conditions during Q4, the Italian lending rate for house purchase moved up to a new cyclical high of 4.26% in Dec., from 3.98% in Nov and a low of 2.69% in mid-2010.
 
Not shown on the chart, but also of interest: Irish housing loan rates fell to a new cyclical low of 3.12% (down from 3.25% in Nov., 3.46% in Oct., and a high of 3.65% in Sept.). Portuguese house purchase rates fell to 5.21% in Dec. from 5.34% in Nov. Dutch lending rates remained steady at 4.56%. Cyprus lending rates rose to a new high of 5.81% (highest since Jun. 09), up from a low of 4.3% in Apr. 2010.
 
 
Lending rates for non-financial corporations
 
Euro area lending rates for non-financial corporations, based on our BarCap aggregation, were relatively stable during Q4 2011, at 3.84% in Dec: they were in a range of 3.50% to 3.91% during 2011. The rates are more varied across countries, however, which probably reflects that Euribor is much less used as a reference/index rate than for interest rates for housing loans. The German series (BarCap aggregation) was at 3.64% in Dec., it has been edging lower, from a 2011 peak of 4.32% in April, presumably also reflecting the decline in German bond yields. However, the Spanish series (BarCap aggregation, excludes overdrafts) moved up to 4.75% in Dec., up from 4.55% in Nov., and to the highest since Dec. 2008. The French aggregate, as published by the BdF, was steady at 3.50% in Dec., where it had been during H2 11. The BdI has yet to publish an Italian series (it was 3.86% in Nov.). That said, it seems likely that the Italian series will have moved up significantly further in December, for the ECB publishes a series for lending rates to non-financial corporations of up to one year: this rose to 4.17% in Dec, up from 3.83% in Nov. and 3.42% in Sep., and a low of 1.86% in Feb. 2010 (and the highest since Dec. 08). Given the relatively high correlation of changes in these BdI and ECB series for Italian lending rates, it could be that the BdI series will move up to close to 4.2% in Dec., which would be the highest since Dec. 08.


source: BarCap
 
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