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Demand for business loans driven by M&A, debt refinancing – ECB survey

The July 2016 bank lending survey by the European Central Bank (ECB) has found a net easing of credit standards on eurozone bank loans in Q2, driven by competitive pressure, plus steady demand for loans.

The ECB has published the results of the July 2016 euro area bank lending survey. It reports a further net easing of credit standards on bank loans to enterprises in the second quarter of 2016. The ECB said that competitive pressure was the main factor driving this easing. The ECB's bank lending survey aims to improve the understanding of banks’ lending behaviour in the euro area.

More than 140 banks took part in the survey, which was conducted over a two-week period, before and after the UK's referendum on EU membership.

Demand for loans continued to increase

The survey also found a net easing of banks’ overall terms and conditions on new loans for enterprises and households, mainly driven by a further narrowing of margins on average loans. It also found that the net demand for loans continued to increase across all loan categories. The main contributing factors for net demand for loans to enterprises were M&A activities, inventories and working capital, the general level of interest rates and debt refinancing, while the positive contribution from fixed investment declined further.

M&A plays key role in driving demand for loans

Some of the key points in the report include:

  • Further improvement in loan supply conditions for loans to enterprises and households, and a continued increase in loan demand across all loan categories
  • Merger and acquisition activity played an important role in contributing to demand for loans to enterprises
  • Euro area banks further strengthened their capital positions and reduced their risk-weighted assets
  • Banks’ participation in targeted longer-term refinancing operations (TLTROs) was mainly driven by profitability motives
  • More banks reporting that TLTROs are making a positive contribution to their own profitability

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