bank lending

Claire Jones

It’s all looking a little brighter for UK households in need of some credit.

Data out from the Bank of England today showed the average mortgage rate dipped slightly, from 3.84 per cent in August to 3.77 per cent in September. Mortgage approvals edged up, to 94,385 from 90,023 in August. The picture was also a little cheerier for unsecured lending to households.

All of which will delight the Bank of England, keen as it is for any sign that Funding for Lending – its latest flagship scheme to spur lending to businesses and households – is working. However, the Bank should be wary about reading too much into today’s data.

A couple of reasons why. Read more

Business loan write-offs are at an all-time high, according to data from the Bank of England. Sterling write-offs to non-financial corporations – which just means businesses that aren’t banks – reached almost £2.5bn in the last quarter of 2010, higher than the previous record of £2.4bn in Q409 (at least as far back as 1993). This is about half a per cent of all loans to NFCs.

NFC write-offs make up half of all sterling write-offs, exceeding credit card write-offs, which also rose significantly q-o-q. Total write-offs are slightly below the Q409 record, mainly because write-offs are lower for individuals’ loans that are neither credit cards nor secured on dwellings. Read more

Ralph Atkins

As in the rest of the world, flows of bank credit to banks and households have slowed dramatically in the eurozone during the past few years. But the official line, maintained by the European Central Bank, has been that there was no general “credit crunch” – supply side constraints that crippled the economy. Rather, the slowdown was seen as demand-led. In other words, in the deep recession nobody wanted to borrow.

The difference in tone has been striking for anyone travelling from continental Europe to the UK, where the downturn has been commonly referred to as simply “the credit crunch”.

Maybe, however, the ECB will have to eat its words? Read more

As the BoJ and ECB report easing credit standards, the Bank of Ireland has just proposed a new consumer code that includes stricter tests for mortgages and consumer credit. New provisions for housing loans include a 2 per cent stress test on the bank’s standard rate and stricter rules on what will and won’t count as proof of income. Self-certified declarations of income, for instance, would be out.

Another significant suggestion in the mortgage market applies to brokers. Mortgage intermediaries are not currently covered by rules that bind insurance brokers, for instance, to disclose the commission they receive on certain products. The new code would extend this requirement to them. Read more

Ralph Atkins

Eurozone mortgage borrowing surged last month to the highest level in almost two years in a sign that bank lending across the 16-country region may be flickering back to life.

Lending for house purchases rose at an annual rate of 3.4 per cent in June – the fastest since September 2008, according to European Central Bank data. The acceleration pointed to a revival in consumer confidence and an increased willingness by banks to fuel the economic recovery with loans to the private sector. Read more

The stress test results are out now and seven European banks have failed – five Spanish banks, one already failed German bank and one Greek bank. Over the next few hours and days, investors will digest the considerable information put out by the Committee of European Banking Supervisors and decide whether they agree with the following conclusion from CEBS.

The aggregate results suggest a rather strong resilience for the EU banking system as a whole and may appear reassuring for the banks in the exercise, although it should be emphasized that this outcome is partly due to the continued reliance on government support for a number of institutions.

If investors are similarly reassured, it should ease pressures in bank funding markets and limit the chances of a further liquidity squeeze on European banks. If not, the exercise could backfire. Read more

Bank debt issues reduced by $122bn in Q4 2009, reversing several quarters of increases (red blocks on chart). Domestic financing in foreign currencies also decreased (lemon blocks), though this was partly offset by an increase in more traditional methods of financing: loans and deposits (blue blocks).

Overall, liabilities are still decreasing, just at a slower rate in Q4. At the end of 2008, BIS data show total bank liabilities standing at $33.9bn. At the end of 2009, the figure was $32.2bn. Read more

Banks are unable to lend as much as needed due to regulations on loan-to-deposit ratios, a senior banker said in Abu Dhabi yesterday. Banks need a liquidity injection from the central bank or a relaxation of the ratio requirement.

“The Central Bank has guaranteed all deposits,” Abu Dhabi Islamic Bank CEO Tirad Mahmoud told Gulf News. “So why do we pay 4 per cent [on deposits]: because we have to in order to meet the regulatory requirement.” Read more

The Irish central bank has revealed that business lending fell during December, at an accelerating rate. The numbers follow similar data from the Bank of England and the European Central Bank.

In Ireland, credit to non-financial corporations fell by 3.2 per cent in December, 2.7 per cent the month before, and 2.2 per cent in October. Private sector lending as a whole was also down at an increasing rate. Read more

Ralph Atkins

The eurozone is likely to be significantly worse affected than the US economy by the drying-up of bank lending, according to research published by the European Central Bank just days before its next interest-setting meeting.

The results of a study into the links between bank lending and eurozone growth could strengthen the hands of those on the ECB’s 22-strong governing council urging caution as it unwinds emergency measures taken to shore up the financial system. Read more

Confusion this morning over a central bank edict to further raise the reserve ratio for certain banks.

Apparently individual lenders, including Citic Bank and Everbright Bank, have been asked to curb their lending for the rest of this month. A surge of new lending in January has triggered a series of intensifying actions by authorities to rid the financial system of excess cash that can fuel inflation and asset bubbles. Last week, China’s central bank raised bank reserve requirements for the first time since June 2008. Read more

An Irish scheme to guarantee bank debts with a duration of less than three months has met with disapproval from Frankfurt. The European central bank is in favour of eurozone countries guaranteeing debt with durations between three months and one year. Ireland’s plan to guarantee even shorter term debt would mean different policies between member states.

An ECB opinion, signed by Jean-Claude Trichet, said: “Unco-ordinated decisions among members states should be avoided as they may involve a fragmentation of the euro area money market.” The ECB also noted that the scheme had no restrictions on the types of debt considered acceptable. Read more

Further loosening in China? New loans in the People’s Republic rose to RMB 294.8bn ($43.2bn) in November, from a total of RMB 253bn in October. Analysts had expected a fall in new loans, to about RMB 250bn, after the drop from September’s high of RMB 516.7bn. A report from the Bank of International Settlements recently observed that the composition of loans in China was changing dramatically, with fewer short-term loans but a brisk increase in medium- and long-term loans.

The ratings agencies have been busy: we are awash with downgrades and warnings. First up, S&P. They have ranked banks’ health using a new methodology, and it makes for grim reading. Just nine of 45 banks exceeded the minimum “risk-adjusted capital” ratio (for example, HSBC did well; UBS and Citigroup less so). The results are important because the new methodology foreshadows the new capital regime ratio likely to be adopted by Basel next year. S&P conclusion: “Capital for the majority of banks remains a relative weakness.”

Next, Fitch has downgraded Mexico to BBB, just two notches above junk status. Read more

Ralph Atkins

The ECB’s monthly bulletin takes a disapproving tone as it reviews measures taken to combat the recession, writes Ralph Atkins of the Financial Times Read more

The G20 leaders are set to work together on reforming the world economy but there are many potential pitfalls ahead.  Read more