Bank of Albania: Bank Lending Survey - Q2 2017

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1. Bank of Albania . Monetary Policy Department Bank Lending Survey Results for 2017 Q2 July 20171 ____________________________________________________________________________________ Bank lending survey results in 2017 Q2 show credit standards on loans to enterprises remained almost unchanged from the previous quarter and eased on loans to households. By enterprise size, credit standards on loans to small and medium-sized enterprises eased somewhat, while those on loans to large enterprises remained unchanged. Credit standards on loans to households eased on consumer credit, while those on loans for house purchase remained unchanged. Main factors contributing to the easing of bank credit standards on loans to enterprises are: competition in the banking market, liquidity situation of banks and the decisions of the Bank of Albania. The above-stated indicators, in addition to capital adequacy of banks, were perceived as factors that drove to the easing of credit standards on loans to households. Non-performing loans, the macro-economic situation and sector-related specific problems contributing to the tightening of bank credit standards. The eased policy of banks on loans to enterprises was mainly implemented though the reduction of commissions and average margin. Meanwhile credit standards on loans to enterprises were tightened through the increase of collateral requirement. Banks reported that credit standards on loans to households were eased mainly through the narrowing of average margin on loans, increase of the required debt-to-income ratio and increase of credit size. Banks' experts reported an unchanged credit demand from enterprises, while households increased the credit demand in 2017 Q2. The increase in credit demand from households was due to the higher demand for consumer credit, while credit demand for house purchase remained unchanged. Banks expect credit standards applied on loans to households to tighten, and to remain unchanged on loans to enterprises, in 2017 Q3. The tightening of credit standards on loans to households is expected on consumer credit and mortgage loans. Credit demand, from both enterprises and households, is expected to increase. Lending to enterprises 1 The survey conducted at the end of June 2017 covers the developments in bank lending during 2017 Q2 and banks' expectations for lending in 2017 Q3. 1
2. Credit standards applied on loans to enterprises remained almost unchanged in 2017 Q2 . Credit standards on loans to small and medium-sized enterprises were eased somewhat, in line with the previous quarter's expectations. Credit standards applied on loans to large enterprises, unlike the expectations, remained unchanged. Banks expect credit standards applied on loans to small and medium-sized enterprises to remain unchanged in 2017 Q3, as well as for large enterprises. By purpose of use, banks tightened the credit standards for working capital; for investments credit standards remained unchanged. Credit standards applied on loans to both categories are expected to not change in 2017 Q3. Chart 1 Standards on loans to enterprises in total, by size of enterprises and purpose of use (net balance ) 1 expected actu al eased 30 25 SME Total Large enterprises 20 Working capital Investments 15 10 5 0 tighnten -5 -10 -15 -20 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 Source: Bank of Albania. Note 1. The net balance is the percentage of banks that have changed their standards; positive balance indicates an easing of standards, whereas negative balance indicates a tightening of standards. The main factors contributing to the easing of credit standards to enterprises in the second quarter are: competition in the banking market, Bank of Albania's decisions, and level of liquidity in the system. Meanwhile, the other factors, sector-related specific problems, non-performing loans, perception about macro-economic situation, and capital adequacy continue to contribute to the tightening of credit standards (see Chart 2). Chart 2 Impact of different factors on credit standards applied on loans to enterprises (net balance ) 2 40 20 0 -20 -40 BoA's decisions Q2- 17 Q1- 17 Q4- 16 Q3- 16 Q2- 16 Q1- 16 Q2- 17 Q1- 17 Q4- 16 Q3- 16 Q2- 16 Q1- 16 Q4- 15 -60 Bank's capital adequacy Competition Liquidity Sector specific risks Macroeconomic situation Non-performing loans -80 -100 Q2- 17 Q1- 17 Q4- 16 Q3- 16 Q2- 16 Q1- 16 Q4- 15 Q2- 17 Q1- 17 Q4- 16 Q3- 16 Q2- 16 Q1- 16 Q4- 15 Q2- 17 Q1- 17 Q4- 16 Q3- 16 Q2- 16 Q1- 16 Q4- 15 Q2- 17 Q1- 17 Q4- 16 Q3- 16 Q2- 16 Q1- 16 Q4- 15 Q2- 17 Q1- 17 Q4- 16 Q3- 16 Q2- 16 Q1- 16 Q4- 15 Source: Bank of Albania. Note 2. The positive balance indicates that the factor contributed to easing the lending standards. The negative balance indicates that the factor contributed to tightening the lending standards. 2
3. The easing of credit standards to enterprises was mainly implemented through the reduction in commissions and in the average margin . Meanwhile, increase in collateral requirements contributed to the tightening of credit standards. Chart 3 Change in credit standards applied on loans to enterprises (net balance ) 3 40 Margin on riskier loans 30 20 Collateral requirements Size of loan Maturity 10 0 -10 Margins on average loans -20 Commisions -30 -40 -50 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Source: Bank of Albania. Note 3. The positive balance indicates the easing of credit standards, whereas the negative balance indicates their tightening. Demand for credit remained almost unchanged in 2017 Q2, mainly affected by the credit demand from large enterprises, while small and medium-sized enterprises showed increase of credit demand. In 2017 Q2, enterprises showed higher credit demand for working capital, while credit demand for investments remained unchanged (see Chart 4). Banks expect both small and medium-sized enterprises and large enterprises to increase the demand for credit in 2017 Q3. Chart 4 Enterprises’ credit demand by size of enterprise and purpose of use (net balance ) 4 expected actual 50 SME eased 40 Working capital Large enterprises Investments 30 20 10 tighten 0 -10 Total -20 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 -30 Source: Bank of Albania. Note 4. The positive balance indicates an increase in credit demand, while negative balance indicates a decrease. 3
4. Factors affecting demand . Banks reported that enterprises' credit demand was driven by the need to finance both the working capital and investments, as well as by the more favourable financing conditions. Banks perceived the low demand for credit as a result of using alternative financial sources outside the banking system. Chart 5 Contributing factors to enterprises’ demand for loans (net balance ) 5 80 BoA's decisions Other financing sources Bank's credit terms&conditions Macroeconomic situation Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Investment Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Working capital 60 40 20 0 -20 -40 -60 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Source: Bank of Albania. Note 5. Note: The positive balance indicates that the factor has contributed to the growth of demand. The negative balance indicates that the factor has contributed to the fall of demand. Lending to households Credit standards. Credit standards applied on loans to households eased in 2017 Q2. According to the questionnaire’s results, standards eased on consumer credit, but remained almost unchanged on loans for house purchase, in line with the expectations in the previous quarter. Banks expect a slight tightening of credit standards applied on loans for house purchase and on consumer credit in 2017 Q3. Chart 6 Households’ credit demand, total and by purpose of use (net balance) expected actu al 40 eased 30 20 tightended 10 0 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 Q3- 2014 Q1- 2014 Q3- 2013 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 Q3- 2014 Q1- 2014 Q3- 2013 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 Q3- 2014 Q1- 2014 Q3- 2013 -20 Financing of consumption House purchase Total households -10 Source: Bank Lending Survey, Bank of Albania. Factors affecting credit standards. The credit standards on loans to households eased further mainly driven by the increase of competition in the banking sector, level of liquidity and capital adequacy of banks. On the other 4
5. side , the financial situation of households, the situation in real estate market and non-performing loans contributed to the tightening of lending standards on loans to households. Chart 7 Impact of different factors on credit standards applied to households (net balance2) 50 40 30 Bank's capital adequacy BoA's decisions Competition Liquidity Individual financial situation Nonperforming loans Real estate market developments 20 10 0 -10 -20 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Source: Bank Lending Survey, Bank of Albania. Conditions on loan approvals. The easing policy of credit standards on loans to households was mainly implemented through the narrowing of the average margin for loans during 2017 Q2 as well. Also, the other terms and conditions, such as the increase in debt-to-income ratio, the increase in the size of credit, the decrease of commissions and of collateral requirements, contributed to the easing of standards, albeit at a lesser extent. Chart 8 Credit standards applied to households (net balance) 50 Margins on riskier loans Commisions Size of loan Collateral requirements Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Margins on average loans Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 40 Maturity 30 Credit payment/ revenues 20 10 0 -10 -20 -30 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Source: Bank Lending Survey, Bank of Albania. Demand for credit. Banks reported that the households' credit demand increased in 2017 Q2, in line with the banks' expectations in the previous quarter. The expansion in the credit demand from households is mainly driven by the demand for consumer credit, while the demand for mortgage loan appears almost unchanged. Credit experts expect households' demand for credit to continue to increase in the next quarter. 5
6. Chart 9 Households ’ credit demand, total and by purpose of use (net balance) expe cted actual 60 Total households eased 50 Financing of consumption House purchase 40 30 20 0 -10 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 Q3- 2014 Q1- 2014 Q3- 2013 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 Q3- 2014 Q1- 2014 Q3- 2013 Q3- 2017 Q1- 2017 Q3- 2016 Q1- 2016 Q3- 2015 Q1- 2015 Q3- 2014 Q1- 2014 -20 Q3- 2013 tightened 10 Source: Bank Lending Survey, Bank of Albania. Factors affecting demand. The increase in households' demand was mainly driven by the improved lending standards and the increase in the need to finance consumption and the house purchase, in 2017 Q2. Meanwhile, banks' experts reported that the presence of the alternative financing sources and consumer confidence provided a negative contribution to the performance of households' credit demand. Chart 10 Contributing factors to households’ demand for loans (net balance) 70 Other financing sources 50 BoA's decisions Consumer sentiment Real estate market developments 30 10 Bank's credit conditions -10 Consumer credit Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 -30 House purchase -50 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Source: Bank Lending Survey, Bank of Albania. Expectations for lending by currency. Banks expect an increase of lending in both the domestic currency and foreign currency in 2017 Q3. Almost all banks do not expect changes in interest rates in lek and in foreign currency, in the next quarter. 6
7. Chart 11 Expectations for lending (left); expectations for interest rates (right); (net balance) 6 in Lek in lek in fo reign currency in fo reign currency Q2- 2017 Q4- 2016 Q2- 2016 Q4- 2015 Q2- 2015 Q4- 2014 Q2- 2014 Q4- 2013 Q2- 2013 Q4- 2012 Q2- 2012 Q4- 2011 Q2- 2011 -50 Q4- 2010 -30 Q2- 2010 -40 Q2- 2017 -20 Q4- 2016 -30 Q2- 2016 -10 Q4- 2015 -20 Q2- 2015 0 Q4- 2014 -10 Q2- 2014 10 Q4- 2013 0 Q2- 2013 20 Q4- 2012 10 Q2- 2012 30 Q4- 2011 20 Q2- 2011 40 Q4- 2010 30 Q2- 2010 50 Source: Bank Lending Survey, Bank of Albania. Note 6. The positive balance shows the increase in lending or the increase in the interest rate. The negative balance shows the decrease in lending or the decrease in the interest rate. 7
8. Annex 1 . Lending to enterprises The results are analysed by calculating the net balance as the difference between the weighted responses of banks reporting easing of/increase in standards/demand and those reporting tightening of/decrease in standards/demand. In aggregating the results, each bank’s response is weighted based on the response and on the size of the bank. For example, banks providing the response that the standards “tightened considerably” have been assigned the double of the weight compared to the response “tightened slightly”. The weight of size is built based on the share that each bank has in the credit market and are reviewed once a year. The net balances are scaled in order to acquire values within the interval of +/- 100”. Enterprises 2016 Q1 2016 Q2 2016 Q3 Changes in bank lending standards -Current quarter 2.7% -4.4% -13.4% -Next quarter -1.0% 13.1% -1.0% Factors affecting credit standards -Bank’s capital adequacy 16.6% 12.5% -7.1% -Bank of Albania’s decisions 10.2% 2.4% 9.6% -Competition in the banking system 33.5% 22.2% 16.9% -Current or expected liquidity level 7.0% 6.4% 4.3% -Specific business sector-related concerns -41.9% -31.3% -34.7% -Current or expected macro-economic situation -15.1% -28.3% -20.6% Non-performing loans -33.6% -25.5% -26.3% Changes loan approval standards -Average margin 34.8% 18.6% 9.0% -Margin for risk-rated loans 0.0% 0.0% 0.0% -Commissions 14.4% 11.7% 6.6% -Loan amount 7.3% 3.6% 1.3% -Collateral requirement as a ratio of loan amount -11.2% -12.2% -12.1% -Maximum loan term to maturity -1.8% -1.0% 1.0% Changes in business credit demand -SMEs, previous quarter 25.1% 12.7% -9.0% -SMEs, next quarter 23.3% 21.9% 28.4% -large enterprises, previous quarter -7.1% -4.2% 5.9% -Large enterprises, next quarter -12.0% -1.8% 31.4% Factors affecting change in demand for loans -Need to finance inventories 21.4% 35.8% 30.3% -Need to finance fixed investments 32.7% 19.2% 38.3% -Use of alternative financial resources 2.6% 6.0% 7.1% -Bank of Albania’s monetary policy decisions 6.1% 9.1% 10.6% -Lending standards applied by your bank 44.5% 32.4% 25.3% -Current or expected macro-economic situation 4.6% -21.9% 1.4% 2016 Q4 2017 Q1 2017 Q2 -12.1% -10.0% -11.9% -9.1% 1.2% 1.2% -14.7% 7.0% 16.9% 7.0% -36.1% -20.6% -26.3% -15.0% 1.4% 21.7% 2.2% -36.2% -19.2% -24.8% -15.0% 1.4% 21.7% 2.2% -24.6% -13.4% -19.0% 6.2% 0.0% 6.6% -1.4% -9.4% 1.0% 5.3% 0.0% 1.2% -1.4% -22.0% 0.0% 5.3% 0.0% 7.0% -1.4% -8.8% 0.0% 2.6% 22.3% 0.3% 8.2% 12.0% 3.9% 4.3% -9.1% 13.4% 7.0% -1.2% 14.1% 31.7% 33.3% 7.1% 5.6% 22.6% 13.2% 28.6% 33.5% -5.7% 0.0% 25.7% 1.8% 28.7% 39.3% -5.7% 0.0% 31.5% 1.8% Source: Bank Lending Survey, Bank of Albania. 8
9. Annex 2 . Lending to households The results are analysed by calculating the net balance as the difference between the weighted responses of banks reporting easing of/increase in standards/demand and those reporting tightening of/decrease in standards/demand. In aggregating the results, each bank’s response is weighted based on the response and on the size of the bank. For example, banks providing the response that the standards “tightened considerably” have been assigned the double of the weight compared to the response “tightened slightly”. The weight of size is built based on the share that each bank has in the credit market and are reviewed once a year. The net balances are scaled in order to acquire values within the interval of +/- 100”. Households 2016 Q1 2016 Q2 2016 Q3 Changes in bank lending standards -Current quarter 7.7% 10.1% 18.4% -Next quarter 13.9% 6.0% 3.8% Factors affecting credit standards -Bank’s capital adequacy 13.4% 10.1% 11.3% -Bank of Albania’s decisions 4.3% 0.0% 0.0% -Competition in the banking system 21.2% 16.1% 18.9% -Current or expected liquidity level 17.6% 10.1% 15.6% -Households’ financial situation -5.7% -6.3% -6.3% -Non-performing loans -9.1% -15.7% -15.7% -Developments in the real estate market -10.9% -11.3% -8.9% Changes in loan approval standards -Average margin 28.7% 24.9% 24.0% -Margin for risk-rated loans -1.8% -1.2% 5.5% -Commissions 5.6% 1.6% 4.0% -Loan amount 2.4% -1.2% 1.2% -Collateral requirement as a ratio of loan amount -6.8% -0.2% 2.8% -Maximum loan term to maturity 2.4% -1.2% 1.2% -Instalment-to-income ratio -1.8% -1.2% 4.0% Changes in household credit demand -Mortgage loan -9.8% 11.4% 2.2% -Consumer loans -13.6% 27.6% 37.0% Factors affecting change in demand for loans -Households’ needs to finance house purchase 6.0% 17.5% 23.3% -Households’ needs to finance consumption 1.9% 27.6% 27.4% -Use of alternative financial resources 0.3% 8.6% 5.4% -Bank of Albania’s monetary policy decisions 9.5% 16.4% 4.9% -Consumer confidence -9.4% 1.2% -13.8% -Developments in the real estate market -13.7% 9.3% -7.2% -Lending standards applied by your bank 27.6% 30.5% 27.2% 2016 Q4 2017 Q1 2017 Q2 13.2% 4.9% 18.3% 5.0% 10.6% -2.3% 11.3% 0.0% 23.8% 10.1% -10.1% -15.7% -5.1% 11.7% 0.0% 17.6% 11.7% -12.9% -10.6% -12.9% 16.6% 0.0% 17.6% 11.7% -12.9% -10.6% -12.9% 17.9% 0.0% 5.0% 2.2% 2.8% 1.2% 4.0% 22.8% 0.0% 3.9% 0.0% 2.8% -1.1% 5.5% 16.6% 0.0% 3.9% 5.0% 1.7% 0.0% 7.7% 2.5% 36.3% -4.9% 30.2% 1.6% 52.7% 12.7% 20.7% -16.8% 0.0% -8.9% 3.2% 16.4% 5.3% 17.4% -20.2% -1.1% -8.4% -7.8% 20.3% 15.1% 27.3% -15.4% -1.1% -9.5% -2.9% 32.9% Source: Bank Lending Survey, Bank of Albania. 9