Norges Bank

Survey of Bank Lending

Unchanged credit demand and lower margins on residential mortgage lending

Series:
Survey of Bank Lending
Number:
4/2020

Overall, banks report that household and corporate credit demand was broadly unchanged in 2020 Q4.[1] Credit standards and loan conditions were also unchanged, and no change is expected ahead. Margins on residential mortgage lending edged down as a result of higher funding costs. Banks report that demand for interest-only periods during the renewed rise in infection rates in autumn 2020 was lower than during the first wave of Covid-19, particularly among enterprises. Banks further report that the removal of the expanded flexibility quota in the residential mortgage loan regulation has not appreciably reduced the number of loans, the size of the loans or banks’ willingness to approve loans.

Households

Overall residential mortgage demand was broadly unchanged in 2020 Q4 and banks expect demand to remain unchanged ahead (Chart 1). Demand for fixed-rate loans and first-home mortgages was also unchanged.

Banks’ margins on residential mortgage lending edged down in Q4 (Chart 1), reflecting somewhat higher funding costs and slightly stronger competition while lending rates remained unchanged (Chart 2). No change is expected ahead.  

Chart 1

Overall credit demand, credit standards and residential mortgage lending margins

Chart 2

Lending rates and lending margins. Lending to households.

Overall, banks report that credit standards for households were approximately unchanged in 2020 Q4 and are expected to remain unchanged ahead (Chart 1). In the Q3 survey, several banks expected some tightening of credit standards. The reason given was the temporary relaxation in the residential mortgage loan regulation that was discontinued as from Q3, which was expected to reduce both the number of loans and the size of the loans that banks would wish to approve. For Q4, a majority of the banks report that neither the number or size of the loans nor banks’ willingness to approve loans have been appreciably reduced following the removal of the temporary relaxation (Chart 3).

Chart 3

After the flexibility quota was reset to its original level (on 1 October), what is your assessment of the following statements?

Loan conditions for households were unchanged in Q4. Overall, the use of interest-only periods was also unchanged, but these responses vary across banks. Some banks report an increase in the use of interest-only periods, while others report a reduction. Banks also report that the renewed rise in infection rates and related containment measures during the second wave of Covid-19 have not resulted in the same demand for interest-only periods as during the first wave in spring. More than half of the banks report that the share of retail customers applying for interest-only periods fell a little or a lot in Q4 compared with the first wave (Chart 4). Several banks suggest that this may be because some borrowers are still making interest-only payments approved in Q2 and Q3. Furthermore, a majority of the banks report that the share of retail customers with debt-servicing problems is approximately unchanged since the first wave (Chart 4).

Chart 4

The Covid-19 pandemic is now in its second wave. Compared with the situation during the first wave, what was the situation in Q4?

Enterprises

Banks report that overall credit demand from non-financial enterprises was approximately unchanged in 2020 Q4 (Chart 5). Demand for commercial real estate loans increased slightly (Chart 6), but these responses vary somewhat across banks, with some banks reporting higher demand and others reporting lower demand. Demand is expected to be unchanged ahead (Charts 5 and 6).

Overall credit standards were unchanged in Q4 (Chart 5), and there were only marginal changes in the factors affecting credit standards. Banks expect virtually unchanged credit standards in 2021 Q1 (Chart 5), but emphasise that this will depend on the evolution of Covid-19.

Banks’ margins on corporate lending were approximately unchanged in Q4, and no change is expected ahead (Chart 5). Nor was there any change in banks’ funding costs or corporate lending rates.

Chart 5

Credit demand, credit standards and margins – enterprises

Chart 6

Credit demand from non-financial enterprises. Type of loan

Overall, loan conditions for enterprises were unchanged in 2020 Q4, but some banks report slightly higher collateral and equity requirements in industries hardest hit by containment measures. No change is expected ahead.

The use of interest-only periods was approximately unchanged in Q4. As in the household sector, banks report that the renewed rise in infection rates in autumn 2020 and stricter containment measures have not resulted in the same demand for interest-only periods in the corporate sector as during the first wave of Covid-19. Eight out of ten banks report that the share of corporate customers applying for interest-only periods has fallen a little or a lot (Chart 7). On the other hand, the share of corporate customers with payment problems is approximately unchanged (Chart 7). One bank adds the comment that many enterprises applied for interest-only periods as a preventive measure during the first wave of Covid-19 and have now reverted to ordinary loan conditions. The same bank writes that enterprises with serious financial problems have requested or applied for both government-guaranteed liquidity loans and extensions of interest-only periods. All the banks also report that enterprises have drawn on their bank deposits a little or to some extent during the pandemic (Chart 8).

Chart 7

The Covid-19 pandemic is now in its second wave. Compared with the situation during the first wave, what was the situation in Q4?

Chart 8

To what extent have enterprises drawn on their bank deposits during the pandemic?

 

Footnotes

[1] The survey was conducted in the period 18 December 2020 – 5 January 2021.

 

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

Published 14 January 2021 10:00
Published 14 January 2021 10:00