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German Banks Tightened Corporate Credit Relatively Little

Recent discussions have highlighted the trend for financial institutions to tighten credit standards. Given the confluence of challenging external factors, this move is not surprising. In this context, the European Central Bank’s (ECB) Bank Lending Survey is important. This survey gathers insights from the chief credit officers of 157 leading banks in the euro area.

The chart below shows the weighted average of banks that have tightened their credit standards for corporate loans over the past eight quarters:

– Banks in Luxembourg and Estonia have been the most stringent in this respect.
– In contrast, Belgian banks have almost not tightened credit standards and Greek banks even eased corporate credits
– German financial institutions have shown a comparatively moderate degree of tightening.

What is the ECB Diffusion Index?
The diffusion index in the ECB Bank Lending Survey measures lending conditions by comparing the proportion of banks reporting tightened credit standards to those reporting eased standards, with a higher weight (score of 1) given to responses of „considerably“ and a lower weight (score of 0.5) to responses of „somewhat“. This index provides a weighted difference, aiding in the analysis of aggregate lending conditions, which is crucial for the ECB’s assessment of monetary and economic developments. Conducted quarterly with senior loan officers from a representative sample of euro area banks, the survey, through the diffusion index, helps the ECB in making informed monetary policy decisions based on the evolving lending scenario within the euro area.