FXStreet (Delhi) – Peter Vanden Houte, Research Analyst at ING, suggests that given the continued discussions on the impact of the ECB’s non-standard monetary policy measures, today’s Bank Lending Survey gives some indications to what extent the transmission mechanism has been working. Key Quotes “Banks in the Eurozone reported a net easing of loans to enterprises (-4%) in the fourth quarter of 2015. Credit standards on loans to households saw a significant net easing (-7%), while standards on consumer loans remained broadly unchanged (+1%). Amongst the bigger Eurozone countries the credit easing trend was the most prominent in Italy. For the first quarter of 2016 banks expect a further easing of credit standards on loans to enterprises (-4%), a slight easing for housing loans (-1%) and a more significant loosening for consumer credit (-8%). Competition proves to be the main driver behind the improved credit standards. Interestingly, for Italy the improving situation in terms of cost of funds and balance sheets also was an important contributor to easier credit conditions. Loan demand is definitely picking up on the back of low interest rates and easier credit standards. For the fourth quarter net loan demand by enterprises increased significantly (net balance of banks reporting higher credit demand increased to +27% from +16% in the third quarter of 2015). In all big member states, apart from France and the Netherlands, fixed investment was an important factor for the growth in credit demand by enterprises. This bodes well for a recovery in business investment in 2016. Both housing loan demand (+ 29% after +33%) and consumer loan demand (+21% after +19%) remained healthy. The increase was strong across the board in Spain and in Italy, while French banks actually reported somewhat softer credit demand in the fourth quarter (both from companies and households). Regarding the TLTROs banks reported declining participation in the most recent operations, largely on the back of the absence of funding constraints. Today’s figures will probably reinforce the hawks’ stance within the Governing Council. The improving outlook for the credit market is indeed showing that the current monetary policy measures are already working. The fact that the TLTROs are used less than before, shows that there is no need to do more. On the contrary, lowering rates further or adding monetary stimulus pushing down market rates, might hurt banks’ profitability, since banks can only partially pas the negative interest rates on to their customers. The resulting downward pressure on profit margins could actually press them to increase credit margins, thereby partially neutralising the monetary stimulus. In that regard, we believe that despite the very low inflation rate, the ECB will sits on its hands for some time to come. Only if signs would emerge that the recovery is faltering, we might see additional action to restore confidence.” For more information, read our latest forex news.