Overall household and corporate credit demand was broadly unchanged between 2020 Q2 and Q3, although survey responses vary across banks.[1] Credit standards and loan conditions were little changed, but banks report some reduction in the use of interest-only periods. Margins on corporate lending fell a little and were unchanged on residential mortgage lending. Several banks write that the discontinuation of the expanded flexibility quota will likely limit both the number of loans and the size of the loans banks prefer to grant ahead.[2] Corporate demand for investment credit picked up slightly from Q2.

Households

Overall residential mortgage demand was broadly unchanged between 2020 Q2 and Q3 (Chart 1), although responses vary somewhat across banks. Demand for first-home mortgages increased slightly, while demand for fixed-rate loans was unchanged (Chart 2). Only marginal changes in residential mortgage demand are expected ahead (Chart 2).

Banks report somewhat stronger competition in Q3, and banks’ funding costs and lending rates edged down. Overall, this resulted in approximately unchanged margins on residential mortgage lending in Q3. Margins are expected to fall slightly ahead (Chart 1).

Overall credit standards for households were approximately unchanged between Q2 and Q3 (Chart 1), and there were only marginal changes in the factors affecting credit standards. For Q4, banks expect a slight tightening of credit standards, reflecting the discontinuation of the temporary relaxation in the residential mortgage loan regulation after Q3. With the flexibility quota back to its usual level, a majority of the banks expect that the regulation will likely limit both the number of loans approved and the size of the loans. Banks report that the residential mortgage loan regulation was also having this effect at the beginning of 2020, ie before the temporary relaxation was introduced.

Banks report a slight decrease in the use of interest-only periods after a substantial increase in Q2. In the period ahead, banks expect the use of interest-only periods to continue to edge down but emphasise that there is considerable uncertainty related to the situation of households in the sectors most affected by containment measures.

Enterprises

Overall, banks report that credit demand from non-financial enterprises was approximately unchanged in Q3 (Chart 3), but these responses also vary across banks, with some banks reporting higher demand and others reporting lower demand. Banks’ funding costs and margins on corporate lending fell a little in Q3. No change is expected ahead (Chart 3).

In the period ahead, banks expect a slight increase in demand for commercial real estate loans (Chart 4). Demand for credit to cover liquidity needs rose in Q2, while demand for credit for investment purposes fell. For Q3, banks respond that demand for investment credit picked up a little and that demand for liquidity credit was approximately unchanged (Chart 5). Banks further report that approvals of loans to cover liquidity needs have generally not crowded out approvals of investment loans in Q2 and Q3.

Overall credit standards were unchanged and the factors affecting credit standards were also unchanged. Banks expect no tightening of credit standards in Q4.

Banks report that both the use of interest-free periods and the share of corporate customers with debt-servicing problems fell slightly in Q3. Almost all the banks report that their scope for helping enterprises with payment relief measures and/or expanded credit lines is being limited by government support schemes that are being unwound and to some extent by banks’ own risk assessments.

Footnotes

[1] The survey was conducted in the period 22 September – 6 October 2020.

[2] In this round of the lending survey, banks were asked additional questions about the effect of the amended flexibility quota in the residential mortgage loan regulation, and supplementary questions about corporate credit demand and banks’ measures to help customers with payment problems.