Household and corporate credit demand fell slightly in 2023 Q3. Credit standards were approximately unchanged. Banks expect the same for Q4. Banks reported a slight increase in the use of interest-only periods for both new and existing mortgages over the past six months. Most banks expect a somewhat higher risk that commercial real estate (CRE) and real estate developers will breach the terms of existing loan covenants and are imposing somewhat stricter equity requirements for new loans.

Households                         

Overall, banks reported that residential mortgage demand fell slightly in 2023 Q3 compared with Q2 (Chart 1). Banks expect demand to fall slightly further in 2023 Q4. Demand for fixed-rate loans also fell slightly in Q3 and is expected to continue in Q4.

Credit standards for households were approximately unchanged in Q3, and banks expect no change in Q4 (Chart 1).

Banks as a whole reported a slight fall in lending margins on residential mortgages in 2023 Q3, while banks’ funding costs and lending rates edged up (Charts 1 and 2). For Q4, banks expect funding costs and lending rates to continue to increase. Lending margins are expected to remain approximately unchanged.

In this survey, banks were also asked about developments in new residential mortgage loans, as in 2023 Q1. Seven out of ten banks reported that the debt-servicing capacity of households that took out new loans has fallen over the past six months, and five banks expect some decline over the next six months (Charts 3 and 4). Most banks reported a slight increase in interest-only periods over the past six months and expect a continued increase over the next six months. Few banks reported changes in repayment periods, or loan-to-value or debt-to-income ratios.

In this survey, banks were also asked about the use of interest-only periods on existing residential mortgage loans. Half of the banks reported that the use of interest-only periods has edged up over the past six months, while one bank reported that it has edged down (Chart 5). For the next six months, nine out of ten banks expect an increase in the use of interest-only periods.

Corporates

For non-financial corporates, banks as a whole reported slightly lower credit demand in 2023 Q3 (Chart 6). Credit line utilisation and demand for fixed-rate loans were approximately unchanged in Q3, while demand for CRE loans fell somewhat. Banks expect the same for Q4.

Overall, credit standards for non-financial corporates were broadly unchanged in 2023 Q3, but banks reported a further slight tightening of credit standards for CRE firms. Banks expect credit standards to remain approximately unchanged in Q4.

On the whole, banks reported that lending margins on corporate loans were broadly unchanged in Q3 (Chart 6), while lending rates edged up (Chart 7). Banks expect the same for Q4.

In this survey, we asked banks if their assessments of the CRE segment had been affected by developments in the economy and financial markets over the past six months. Similar questions were asked in 2023 Q1. Their responses are consistent with a slight further tightening of credit standards for CRE firms over the past six months (Chart 8). The majority reported somewhat higher equity requirements for new loans to CRE firms, while three out of ten banks reported somewhat higher interest coverage ratio (ICR) requirements. Furthermore, the majority of banks reported a somewhat higher risk that CRE borrowers will breach the terms of loan covenants relating to both equity ratios and ICRs.

In this survey, banks were also asked about their assessments of real estate developers. Most banks reported that their equity requirements for new loans to real estate developers have increased somewhat, and half of the banks reported that debt-servicing capacity requirements have also increased somewhat (Chart 9). Few banks reported changes in pre-sale requirements in the housing market. Most banks reported an increased risk that borrowers in the real estate development sector will breach the terms of loan covenants relating to both equity ratios and ICRs.