Following on from Gary’s recent blog
Credit Still Being Cycled
, this week the ECB released their quarterly Euro Area Bank Lending Survey for the first quarter of 2018, and it paints a slightly different picture to the Bank of England’s report in one area in particular.
As with the BoE report, the ECB follows the structure of asking banks to comment on their lending standards, pricing and demand for credit across enterprise lending, lending to individuals secured on residential property, and consumer unsecured lending. It is also backward and forward looking.
In general the report shows that lending markets continue to offer ready access to credit. All three segments saw credit standards ease over the quarter, most tellingly in enterprise and secured lending, and that demand continued to increase over all three segments.
Specifically in relation to credit standards, the drivers of the easing here for both consumer segments include an increase in risk tolerance, which in relation to consumer unsecured lending is a material differentiator in comparison to the UK data, where we see banks pulling back from lending amid evidence that performance in deteriorating.
Although the ECB data does not offer the performance data that the BoE does, it does tell us that the easing of credit standards here has been more muted than in the secured/enterprise sectors. In fact in the most recent data, while standards have eased in Germany and Spain, there was only a marginal change in France and no change in Italy and the Netherlands. It could be implied that if standards have been kept high then performance could be stronger than in the UK, supported in improved consumer confidence data and a material improvement in some macro economic data such as unemployment levels and house prices, that have recovered across the Eurozone more recently than the equivalent in the UK.
Where standards have eased for consumer unsecured this has been driven by competition and a more positive risk outlook for both the general economic situation and borrowers’ creditworthiness.
We have commented before as to why the tightening of financial conditions in the UK unsecured consumer lending market is of interest. While the growth in the Eurozone is hardly anything to write home about, it does complete a clean sweep of increased availability of affordable financing in all three lending segments for the Eurozone, and this ongoing loosening is consistent with a cycle that is much younger than that of the US or the UK, which should continue to be positive for the fundamental performance of Eurozone assets, without the one amber light that our dashboard has in the UK. It will be interesting to see how this is sustained without the benefits of the ECB’s Asset Purchase Programmes as they taper.