Banks more restrictive on lending to new borrowers
- Survey of Bank Lending
The responses in the 2020 Q1 survey primarily reflect the situation prior to the outbreak of the coronavirus. Expectations for 2020 Q2 are marked by the outbreak and the infection control measures. In this round of the lending survey, banks were asked additional questions about how they are being affected by the coronavirus situation.
Banks report that household and corporate credit demand fell a little in Q1 (Charts 1 and 2). Funding costs for lending to households fell somewhat. A number of banks report that the reduction in the policy rate passed through to interest rates in March, resulting in somewhat improved margins overall. Corporate lending margins were approximately unchanged.
Owing to the virus outbreak and the infection control measures, banks expect a decline in overall residential mortgage demand in Q2. If this expectation is realised, this will be the largest reported fall in residential mortgage demand, as measured by the lending survey, since the financial crisis. Banks also expect lending rates to fall further in Q2 and funding costs to fall somewhat.
Banks expect a slight decrease in corporate demand for loans, but the responses vary considerably. Some banks expect that revenue losses in the corporate sector will lead to increased borrowing needs, while others expect a reduction in borrowing needs owing to low activity. Banks also report increased corporate borrowing against lines of credit and expect a further increase in Q2.
Banks expect some tightening of credit standards for both households and enterprises in Q2 (Charts 1 and 2), with the most pronounced tightening for households, primarily reflecting the economic outlook (Chart 3). Some banks also report that they are more restrictive on lending to new borrowers owing to lower risk appetite and the possibility of defaults and losses. For corporate customers, banks report that approval rates are higher for loans backed by government guarantee schemes. The use of interest-only periods has increased somewhat for both households and enterprises and is expected to increase further in Q2. The increase is larger for households than for enterprises.
In response to the additional questions about households, some banks answer that overall residential mortgage demand has fallen as a result of the virus outbreak, while others report higher demand (Chart 4). Banks report that more households, in particular those affected by layoffs, have experienced problems making their principal payments and that interest-only periods have been actively used to help these households. Banks respond in general that the virus outbreak has not had an appreciable impact on banks’ credit standards so far. This also applies to the ability of banks to process credit applications.
In response to the additional questions about enterprises, banks answer that demand for credit for new investments has declined, while there has been some expansion of existing lines of credit to corporates (Chart 5). Refinancing of existing loans has increased somewhat. Corporate customers are finding it more difficult than previously to make their principal payments, and interest-only periods are being used to help enterprises affected by the virus outbreak. The customer segments finding it most difficult to service their debt are small and medium-sized enterprises (SMEs) and the self-employed, while problems are somewhat smaller for larger enterprises. Credit standards and banks’ ability to process credit applications are approximately unchanged.
 The survey was conducted in the period 26 March - 16 April 2020.
In its work on monitoring financial stability in Norway, Norges Bank uses extensive statistics on developments in credit and financial markets. In order to expand the information base, Norges Bank conducts a quarterly survey of bank lending. The survey provides information on changes in the demand for and supply of credit and on changes in banks’ loan terms and conditions. Objective of the Bank Lending Survey