The banks expect growth in corporate and retail lending volumes over the next 12 months and, for the first time since Q4 2021, are projecting an improvement in loan portfolio quality.
In Q1 2024, the banks improved their assessments of major lending indicators, the quarterly Bank Lending Survey showed.
Demand has risen for both corporate and retail loans. SME, long-term, and hryvnia loans are drawing the most interest from businesses. The need for both working capital and capital investment has been bolstering demand, as have debt restructurings and lower interest rates for SMEs. In Q2, the financial institutions expect an increase in demand for all types of corporate loans.
Better consumer sentiment spurred loan demand from households. What is more, the banks that highlighted the growth in mortgage demand cited the real estate market’s brightened prospects and the decrease in lending by other banks as additional drivers. Going forward, the banks expect an increase in retail demand for consumer loans, but no change in demand for mortgages.
The banks assessed the debt burden of businesses as average, and that of households as low.
The financial institutions tightened their corporate lending standards. Most of the tightening applies to loans to large enterprises, FX loans, and long-term loans. In Q2, the banks plan to ease SME and short-term-loan lending standards and tighten lending standards to large corporates and in FX.
Overall application approval rate for corporate loans fell for the first time in 12 months. This was primarily due to a drop in the number of applications for FX and long-term loans and those to large enterprises. On the other hand, application approvals for SME loans have been on the rise for the fourth quarter in a row.
In Q1, the banks tightened lending standards for mortgages. Concurrently, the banks have been loosening lending standards for consumer loans for five straight quarters. In Q2, the banks plan to ease household lending standards, mainly for mortgages.
Household application approval rate rose only for mortgages, driven for the most part by a certain easing of mortgage requirements.
The financial institutions reported an increase in credit risk and, to an extent, FX risk. Changes in other risks were too small to matter. In Q2, the respondents mainly anticipate growth in interest rate risk and credit risk.
This Bank Funding Survey was conducted from 18 March through 8 April 2024 among bank liability managers. The answers were provided by 26 respondents, which jointly accounted for 96% of the banking system’s total assets. The survey’s results reflect the views of respondents and are not assessments or forecasts by the NBU.
The next Bank Lending Survey, featuring expectations for Q3 2024, will be published in July 2024.