Banks are expecting intensified corporate and retail lending in the next 12 months. At the same time, they assessed the prospects for resumption of corporate lending at the highest level since the survey began, with the balance of responses at 53%. This is according to the Bank Lending Survey for Q4 2019.
Banks show optimism in all aspects of lending conditions: demand for loans, prospects for deposit inflows, the cost of borrowing, and internal requirements for approval of applications.
In Q3 2019, banks indicated a decrease in the cost of borrowing as a driver of demand for loans.
In July–September 2019, banks reported a rise in household demand for consumer loans and in corporate demand for short-term loans and loans to small and medium-sized enterprises (SMEs). This was mainly driven by a decrease in the cost of borrowing, which was reported by banks for the first time since 2017.
Businesses’ needs for current assets and funds for investment also remained drivers of demand for corporate loans. At the same time, the surveyed banks noted a high level of competition for corporate and retail borrowers from both other banks and nonbank financial institutions.
Meanwhile, lending standards for SMEs remain mild. Certain banks reported that positive expectations for economic growth, a decrease in inflationary pressure, and an increase in consumers’ ability to pay contributed to a loosening in internal requirements and criteria for eligibility of borrowers in the consumer segment.
The level of risks faced by banks remained virtually unchanged in Q3 2019, although a third of respondents indicated a minor increase in credit risk.
Banks expect an easing in standards for all types of corporate lending.
This survey shows that banks are confident in lending growth prospects: A total of 74% of the respondents expect their corporate and retail loan portfolios to grow. Their assessment of prospects for resumption of corporate lending reached its highest level since the beginning of 2015 when the survey started, with the balance of responses being 53%.
The majority of the respondents believe that demand for loans to SMEs and consumer loans will grow further. At the same time, banks expect an easing in lending standards for all types of corporate loans and, although slightly, for consumer loans to households.
The balances of responses for expected inflows of corporate and retail deposits were record-high as well, amounting to 53% and 62% respectively.
The surveyed banks expect that FX risk may grow most significantly in Q4 2019, while credit risk will decline. Interest rate risk, operational risk, and liquidity risk will not change.
The next Bank Lending Survey on expectations of lending conditions for Q1 2020 will be published in January 2020.
Note: The latest survey of the credit managers of 50 banks was conducted between 19 September and 10 October 2019. These banks account for 99% of the banking system’s total assets. The survey’s results reflect the views of respondents and do not necessarily reflect the assessments or forecasts made by the National Bank of Ukraine.
For reference: The NBU publishes its bank lending surveys on a quarterly basis. The survey aims to improve understanding by the NBU and other banking sector stakeholders of lending market conditions and trends. It provides general assessments and forecasts of changes in lending standards and conditions for the corporate sector and households, fluctuations in lending demand, etc.