Household credit demand fell slightly in 2024 Q1, while corporate demand remained broadly unchanged. Banks have reported lower demand for residential mortgages over the past three quarters but expect no further fall in Q2. Overall credit standards remained approximately unchanged in Q1. Four out of 10 banks reported a somewhat higher risk of commercial real estate (CRE) firms breaching the terms of loan covenants over the past six months. This is a decline from banks’ responses to similar questions in 2023.

Households

Overall, banks reported that residential mortgage demand fell slightly in 2024 Q1 compared with 2023 Q4 (Chart 1). Banks have reported lower demand for residential mortgages over the past three quarters but do not expect a further fall in Q2. Developments in demand for first-home mortgages were fairly similar. Demand for fixed-rate loans also fell slightly in Q1 and this development is expected to continue in Q2.

Credit standards for households were approximately unchanged in 2024 Q1, and banks expect no change in Q2 (Chart 1). The use of interest-only periods rose slightly in 2023 Q4. Banks reported unchanged use of interest-only periods in Q1 but were expecting a further slight increase.

Banks as a whole reported somewhat higher mortgage rates in 2024 Q1 (Chart 2). Banks’ funding costs and lending spreads were broadly unchanged. For Q2, banks expect approximately unchanged lending rates, funding costs and lending spreads.

In this survey, banks were also asked about any changes regarding customers granted credit and customers denied credit within the flexibility quota in the Lending Regulation. Three out of ten banks reported some decline in loan amounts to customers granted credit within the flexibility quota, and three out of ten reported a somewhat higher number of customers not granted credit (Chart 3).

Banks were also asked about the key reasons for granting credit to customers who may breach debt-servicing capacity requirements. Most banks cited high income growth expectations as a reason for approving loan applications for such customers.

Banks were also asked about the extent to which the Lending Regulation’s requirements affect lending in general and first-time home buyers in particular. For lending in general, the debt-servicing requirement in particular is binding, while for first-time home buyers, both the debt-servicing requirement and the loan-to-value requirement are binding (Chart 4).

Corporates

For non-financial corporates, banks as a whole reported broadly unchanged demand in 2024 Q1 (Chart 5) and expect no change in Q2. Credit line utilisation was approximately unchanged in Q1, while demand for fixed-rate loans increased slightly. Demand for CRE loans fell slightly in Q1, but banks expect a slight increase in Q2.

Overall, credit standards for non-financial corporates were unchanged in 2024 Q1, and banks expect no change in Q2

On the whole, banks reported that lending spreads on corporate loans were broadly unchanged in 2024 Q1 (Chart 5). Banks’ lending rates increased slightly, while funding costs decreased slightly (Chart 6). Banks expect approximately unchanged lending spreads, lending rates and funding costs in Q2.

In this survey, banks were asked if their assessments of the CRE segment had been affected by developments in the economy and financial markets over the past six months. Nine out of 10 banks reported some increased use of hedging (Chart 7). More than half of the banks reported unchanged equity and interest coverage ratio (ICR) requirements for new loans. Furthermore, four out of 10 banks reported that the risk of CRE borrowers breaching the terms of loan covenants relating to both equity ratios and ICRs has increased somewhat. This is a decline from banks’ responses to similar questions in 2023 Q3, when the majority reported some tightening of requirements for new loans and a somewhat higher risk of CRE borrowers breaching the terms of loan covenants.

Banks were additionally asked about their assessment of real estate developers over the past six months. Half of the banks reported that debt-servicing capacity requirements for new loans have increased somewhat, and six out of 10 banks reported that their equity requirements for new loans have increased somewhat (Chart 8). This is approximately the same as the tighter credit standards reported in 2023 Q3. Most banks also reported a somewhat higher risk that borrowers in the real estate development sector will breach the terms of loan covenants relating to debt-servicing capacity, while four out of 10 banks reported a somewhat higher risk relating to equity ratios. In response to similar questions in 2023 Q3, the number of banks reporting an increased risk that borrowers in the real estate development sector will breach the terms of loan covenants was somewhat higher.