Czech banks tighten credit standards in Q2, demand for loans grows – c-bank lending survey

By bne IntelliNews July 22, 2013

Czech banks have tightened their credit standards in the second quarter of 2013, while demand for loans rose during the period, the Czech National Bank's quarterly Bank Lending Survey showed.

Banks’ credit standards for approving corporate loans tightened in Q2, as expected, given the unfavourable outlook in some sectors and worsened expectations regarding the overall economic situation. An improvement in liquidity and tightened competition have led to lower margins, especially for small and medium-sized companies (SMEs), but collateral requirements were tightened.

Despite having been expected to fall, the overall demand for corporate loans increased in Q2, with large companies showing increased appetite, while SMEs indicating a slight decline in demand. Banks reported an increase in demand for long-term loans used to finance mergers, acquisitions and business restructuring, and also a pick-up in demand for short-term loans to cover working capital and inventory purchases.

In Q3, banks expect to tighten further their credit standards for corporate loans, while demand for loans is seen rising for all types of credit except short-term loans.

Regarding loans to households, banks’ credit standards for approving loans for house purchase tightened slightly in Q2, as the clients’ risk profile dominated over increased competition. A large part of banks continued to reduce average margins, but not for riskier loans, and non-interest charges also declined. Demand for loans for house purchase rose from the previous quarter mainly due to ongoing marketing campaigns, which have led to a recovery in the whole market, but also thanks to an expected price stabilisation on the property market and a pick-up in consumer confidence, according to the banks. In Q3, banks expect credit standards to ease and demand for loans for house purchase to fall.

Lower client creditworthiness has led to a tightening of credit standards for consumer credit in Q2, with higher average margins being partly offset by a decrease in non-interest charges. Demand for consumer credit rose thanks to active marketing campaigns, according to the banks. In Q3, households’ demand for consumer credit is expected to decline, while credit standards are seen unchanged.

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