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Banks Note Growing Demand for Corporate and Retail Loans, See Mortgages as Strong Driver of Further Recovery in Demand from Households – Bank Lending Survey

Banks’ upbeat sentiment about the lending dynamics in Q4 2020 continued through the end of Q1 this year: despite expectations for new quarantine restrictions, loan demand from business and households increased. In particular, demand for mortgages has reached record highs since the launch of the survey. Banks noted a moderate easing of both corporate and retail lending standards, anticipated further growth in retail and corporate funding, and expected heightened risks in Q2.

Loan demand picked up as lending conditions eased

In January–March 2021, banks saw an increase in business loan demand, primarily for SME loans, hryvnia loans, and long-term loans. The recovery in demand was mainly driven by lower interest rates, businesses’ capital investment needs, working capital needs, and debt restructuring. Banks attributed the easing of corporate credit standards to high levels of liquidity, tighter competition with other banks, and improved expectations about overall economic activity and the development of certain industries, especially for SMEs.

Lower interest rates were the main reason for the easing of lending conditions. Almost a quarter of respondents cited an increase in the rate of business loan approvals and looser requirements to loan sizes.

Over 80% of financial institutions rated the debt burden of corporate borrowers as average. For large businesses, debt burden was rated as higher compared to SMEs.

Household demand for loans has been on the rise for three quarters running. Lower interest rates, improved consumer confidence, and development prospects of the real estate market spurred borrowers’ credit activity. Banks assessed the change in demand for mortgages as the greatest over the observed period.

Lending standards slightly eased for households, mostly for consumer loans, driven by competition among banks and non-bank financial institutions. Positive expectations for the real estate market contributed to looser mortgage lending standards.

Approvals of mortgage and consumer loans increased moderately thanks to decreased interest rates.

Households’ debt burden was low, which was mainly reported by large banks.

A quarter of market participants downgraded their credit risk assessments in Q1. A slight growth in interest rate risk and liquidity risk with a simultaneous decline in FX and operational risks were reported by large banks mainly.

Lending outlook remains positive

Respondents have a positive outlook on lending for the next 12 months: 78% of respondents forecast growth in corporate loan portfolio, and 82% project an increase in retail loan portfolio.  These are the highest growth estimates of retail loan portfolio since 2015, but some large banks expect its quality to deteriorate.

Respondents became more optimistic about the portfolio’s further growth: 77% expect an increase in retail deposits, and 78% project growth in corporate deposits.

Banks forecast credit, interest rate, and liquidity risks to rise in the coming three months.

Note

Credit managers of 23 banks were polled between 19 March and 9 April 2021. The surveyed banks accounted for 88% of the banking system’s total assets. The survey’s findings reflect the views of the respondents and do not necessarily reflect assessments or forecasts made by the NBU.

For reference

The NBU publishes the Bank Lending Survey on a quarterly basis. The survey aims to help the central bank and other banking sector stakeholders better understand credit 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, and more.

 

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