The European Central Bank said lending conditions in the euro area improved last quarter, signaling the economy was picking up at least until the U.K. cast a cloud over the region’s recovery by voting to leave the European Union.
Loan standards eased for companies and households, and demand for loans rose across all categories, the ECB said in its quarterly Bank Lending Survey published Tuesday. The poll was carried out from June 14-29, covering a period after Britain’s June 23 referendum. The British vote to quit the EU sent the pound tumbling and raised concerns that the economic fallout would hit the euro area, the nation’s biggest trading partner.
“When splitting bank replies at the country level into replies given before and after the U.K. referendum on EU membership , no negative shock can be identified for credit supply or demand,” the ECB said. “It may have been too early for the banks to assess the implications.”
The central bank said that “competitive pressures” remain the main factor behind the net easing of standards on loans to companies, while lower risk perceptions also contributed. For loans to households for home purchase, competition and risk considerations had a net easing impact, while banks’ cost of funds and balance-sheet constraints had a net tightening.
A separate survey for Germany, the euro area’s biggest economy, showed credit standards for corporate loans and consumer credit remained nearly unchanged. Some banks were more restrictive in mortgage lending because of regulatory changes that took effect from March, the Bundesbank said.
The ECB has pushed monetary stimulus in the euro area further than ever as it tries to spur credit creation by pushing market interest rates lower. At the same time, policies such as its negative deposit rate threaten to squeeze bank profitability and reduce their willingness to lend. The Governing Council will review its package of measures at a two-day meeting in Frankfurt starting on Wednesday.
The central bank said its newest measure — long-term loans to banks at potentially negative rates — was seen by banks as bolstering their profitability and translating into an easing of loan terms. The German survey showed banks saw the loans — including an earlier program that was less generous — as leading to a “slight improvement” in their financial situation, but with hardly any impact on their credit standards.
The ECB also said bank regulations could restrain lending standards.
“Looking ahead to the second half of 2016, euro area banks expect regulatory or supervisory action to have a net tightening impact on credit standards for loans to large firms and for loans to households,” it said. “By contrast, banks expect basically no impact on loan margins across the different loan categories.”