Laurent Quignon - Head of Banking economics - BNP Paribas

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Laurent QUIGNON Team : Banking economics +33(0)1 42 98 56 54

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Head : Banking Economies

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Eurozone : Lending trends in the euro zone: The coronavirus pandemic has led to an unprecedented rise in demand for credit from companies, but has hit demand from households

Lending momentum in the euro zone recovered strongly in March 2020, with an increase of 1.6% from a 0.4% fall in February. Against a background of negative GDP growth in the first quarter (-3.3% Q/Q-4 from +1.0% Q/Q-4 the fourth quarter of 2019), conditions in March were severely affected by the lockdown measures introduced by national governments over the month [...]

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France : The new government-guaranteed loan in France

French banks may grant up to EUR 300 billion of government-guaranted loans (‘Prêts garantis par l’Etat’, or PGE) until December 31, 2020. This instrument, which is of an unprecedented scale, is dedicated to helping companies overcome cash-flow difficulties resulting from the coronavirus crisis.

Global : The cryptocurrency economy

Depending on the source, estimates of the number of ‘cryptocurrencies’ vary between 1,600 and 3,000. These crypto-assets struggle to fulfil the three economic functions of money, and so cannot be considered as such. Although their fairly modest uptake currently limits their economic impact, increased use could create risks in the transmission of monetary policy, money creation and financial stability. Several central banks are looking at the introduction of a ‘central bank digital currency’ (CBDC) in response to these challenges. However, far from being simply a substitute for private cryptocurrencies, these CBDCs would carry specific risks in terms of financial stability, most notably that of a ‘digital bank run’. We believe that their possible introduction, and the associated details, will require meticulous analysis.

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Eurozone : Euro zone credit trends: lending to non-financial companies (NFCs) weaker than consumer lending in November and December 2019

Credit impulse in the euro zone stabilised in December 2019 (up 0.3%, as in November) against a background of a slight slowing of real GDP growth in the fourth quarter (1.0% from 1.2% in the third quarter). Outstanding bank lending to the private sector maintained its pace of growth in December (up 3.7% year-on-year). For the second month in a row, growth in lending to NFCs was less than that in lending to consumers. The slowdown in growth in lending to NFCs (where the year-on-year figure fell from 3.8% in October to 3.2% in December) was due mainly to lower investment spending (in France, Germany and most particularly Spain). This was in part offset by strong growth in consumer loans (from 3.5% to 3.7%). For the first time since 2013, more banks are expecting demand for credit from NFCs to slow (first quarter 2020). In contrast, expected demand for consumer mortgages remains strong, driven by low interest rates, particularly in France.

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Eurozone : Credit pulse in the eurozone: positive for households, negative for companies

After picking up in October, the credit pulse of non-financial corporates (NFC) in the eurozone dipped again in November. Yet the decline in the private sector’s credit pulse was still very mild, bolstered by the remarkable stability of the credit pulse for households. Recent trends should extend into first-quarter 2020: the banks surveyed expect loan demand from NFC to continue to ease. Inversely, exceptionally low interest rates should continue to boost loan demand from households, mainly for home loans.

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France : Home affordability trends in France: dichotomy between Paris and the provinces for the past decade

Our home affordability index measures the ratio of the borrowing capacity of households (based on average household income, average fixed mortgage rates and average mortgage duration1) to the average existing home price per square meter (m2). Over the past ten years2, home affordability has increased by 30.4% in the provinces, but declined by 12.2% in Paris. Changes in average credit conditions (the average duration was extended to 18.8 years from 17.8 years, and mortgage rates declined to 1.30% from 4.30%) and disposable household income (+7.1%, notwithstanding differences in level) were relatively homogeneous at the national level, which means the differential can be attributed almost exclusively to the spread in existing home prices changes since 2009: home prices have increased by 64.2% in Paris compared to only 10.2% in the provinces. Moreover, this average figure masks significant price differentials from one region to the next. 1 In so far as home affordability is rebased, it reflects cases in which down payments account for a stable proportion of the transaction amount (homeowners who sell a home before buying another one), as well as those in which the down payment is negligible (i.e. for certain first-time homeowners and rental investors). 2 Between Q3 2009 and Q3 2019

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Eurozone : Sharp decline in credit impulse for non-financial corporations

The credit impulse has declined in September, moderately for households and much more noticeably for non-financial corporations (NFC). For the latter, the credit impulse has hit its lowest level since the beginning of the asset purchases programme by the ECB at the start of 2015. These movements contrast with the stability of GDP growth in the third quarter in the Eurozone (with a year-on-year rate of 1.2%, like in the second quarter). They almost exclusively involve loans with a maturity of less than one year, which is mainly related to destocking behaviour. For the fourth quarter of 2019, banks interrogated by the ECB anticipate a continued moderation of demand by NFCs and an intensification of demand for housing loans by households.

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Japan : Impact of low rates on the saving behavior of Japanese households

Alongside the quasi-uninterrupted decline in Japanese interest rates since the early 1990s, the household savings rate has declined by more than 10 percentage points, from a net rate of 12.9%(1) in 1994(2) to 2.5% in 2017(2). The savings rate consists of a net financial savings rate (gross financial savings flow minus borrowings flow) and a net housing investment rate (gross housing investment flow minus (in Japan) fixed capital consumption). The decrease in the financial savings rate resulted from the decline in the gross financial savings flow rather than from a rise in the borrowings flow. Thus, the flow of gross financial savings not only contracted, but was also reshaped in favour of monetary deposits, owing to the decline in opportunity costs. Gross housing investment flows diminished, falling below the level of depreciation (fixed capital consumption) throughout most of the period, resulting in a net dissaving in housing (in the midst of a slowly deflating housing bubble). Lastly, despite the ongoing decline in financing costs, the household debt rate tended to decline between 2001 and 2012, before picking up mildly again as of 2013. (1) Japan, like the United States but unlike the European Union, reports the net savings rate, i.e. after fixed capital consumption. (2) “Fiscal year” n begins on 1 April of civil year n and ends on 31 March of civil year n+1.

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Eurozone : Bank loans to corporations grow at a slightly faster pace than loans to households

Credit impulse slightly picked up in August 2019 for non-financial corporations (NFCs), while it was nearly unchanged for households. In spite of the slowdown in the euro area GDP in Q2 2019 (+1.1% yoy in 2019 Q2 vs +1,3% in Q1), exceptionally low lending rates have continued to support loans outstanding, which reached +3.4% year-on-year for households, and +4,3% for non-financial corporations.

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Global : The new crypto-currency "Libra" project

The new cryptocurrency project – Libra – which Facebook plans to launch in 2020 raises several questions and requires an appropriate response from the regulator.

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