The banks have reported an increase in loan demand from households and businesses and expect this trend to continue into Q1 2020. The demand has been primarily fueled by lower interest rates. Large banks expect an uptick in the demand for mortgage lending.
At the same time, lending standards for households and legal entities have become more relaxed as the financial institutions have competed for quality borrowers. This is according to the Bank Lending Survey for Q1 2020.
A decline in interest rates in Q4 has driven the demand for household and corporate loans
In October through December, the banks reported an increase in the loan demand from businesses. That mainly includes loans to SMEs, short-term loans, and hryvnia loans. For two quarters running, the banks have cited lower interest rates as a primary driver of the rising demand. In addition, the corporate appetite for borrowings has been fueled by the need for working capital and investment.
At the same time, the banks eased lending standards for small and medium-sized businesses last quarter, as well as for hryvnia corporate loans, amid improved economic expectations, competitive pressure from other banks, and high liquidity. The banks have also increased the rate of approvals of SME loan applications by reducing interest rates and changing the maturity of loans.
Household demand for consumer loans grew in Q4 as well. According to the banks, the growth was helped by a fall in interest rates and by improved consumer sentiment. Competition for borrowers created incentives for the banks to ease consumer lending standards.
In Q1 2020, the banks are continuing to ease lending standards
The banks project that in January–March, the retail and corporate loan portfolios will continue to increase and that there will be an inflow of deposits from both segments.
As for the mortgage lending market, the vast majority of surveyed banks expect no changes in the loan demand from households, although large banks have indicated separately that the development of the real estate market and consumer confidence may slightly increase the demand.
The banks also project an easing of lending standards for small and medium-sized businesses, hryvnia loans, and short-term loans. The banks expect that consumer lending standards will be loosened as well.
The banks project that by late March, operational and credit risks will have declined and that the risks related to interest rates, currency, and liquidity will not have changed.
The Bank Lending Survey for Q2 2020 will be published in April 2020.
Note The latest survey of the credit managers of 49 banks was conducted between 17 December 2019 and 10 January 2020. 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 NBU.
For reference The NBU publishes the Bank Lending Survey on a quarterly basis. The survey aims to improve the 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.