The ECB survey on banks’ lending conditions is very instructive in October. It gives a positive signal on the funding of the Euro economy through the banking sector. Behaviors have changed in 2014 even if this is not yet transformed in real on the growth economic momentum.
A focus will be put on companies as the change in trend will come from them.
Three questions
The first in on credit demand
Companies, small or large, have a demand that is getting stronger all over 2014. To ease the reading of the chart, 0 is the historical level. We see that demand is now well above this threshold.
Credit demand is now better shaped; expectations are stronger
The second question is on credit standards.
We see that these standards are still accommodative and that banks’ behavior is far from what was seen in 2009 and 2012.
The third question reflects the reason for which companies ask for a loan.
If they want a credit, what is it for? The graph gives an interesting answer as in 2014 investment is stronger than in the two previous years. There are also questions on Merger and Acquisitions. There is also a positive answer on inventories financing and working capital. This can reflect an improvement in the current conditions of production.
Of course nothing has really been seen on investment but in case of positive shocks on the economy, some good surprises could come on investment side
On questions on liquidity, banks do not seem constrained. Banks which didn’t go to the TLTRO in September and are not expected to go at December operations said that they didn’t need extra liquidity. This is not the issue.
This can be a reason for the ECB to definitely change the way it manages monetary policy. With LTRO types of strategy, monetary policy is depending on banks behavior to be efficient. That could be a reason for the ECB to change its instrument through direct purchases on the market. Its monetary policy would then gain in efficiency.