ANNUAL REPORT 2008 - Polymer Bank Notes of the World

Chart 15 MFI loans to households(annual percentage changes)Chart 16 Interest rates for lending tohouseholds and non-financial corporations(percentages per annum; excluding charges; rates on newbusiness)totallending for house purchaseconsumer creditother lendingshort-term rates for lending to non-financial corporationslong-term rates for lending to non-financial corporationsrates for loans to households for house purchaserates for loans to households for consumer credit1414101012129910108888776666445522440033-22001 2002 2003 2004 2005 2006 2007-2200822003 2004 2005 2006 2007 20082Source: ECB.Source: ECB.household borrowing in 2008, declined tostand at 1.8% in December, down from 6.2% atthe end of 2007. At the same time, the annualgrowth rate of loans to households by non-MFIs(i.e. OFIs, insurance corporations and pensionfunds) continued to exceed that of MFI loans tohouseholds, which stood at 10.4% in the thirdquarter of 2008. This partly reflects the effectof true-sale securitisation activities, whereloans are derecognised and thereby removedfrom MFI balance sheets, subsequently beingrecorded as loans from OFIs.A breakdown of MFI loans to householdsby purpose indicates that the main driver ofthat moderation was the declining growthrate of borrowing for house purchase. Theannual growth rate of loans to households forhouse purchase was 1.7% in December 2008,having stood at 7.1% in December 2007(see Chart 15). This decline was consistent withthe slowdowns observed in house price growthand housing market activity in a number of euroarea economies. The results of the Eurosystem’sbank lending survey support this assessment, asin the course of 2008 banks identified worseninghousing market prospects and deterioratingconsumer confidence as the main factorscontributing to the dampening of households’demand for loans for house purchase. Moreover,the worsening housing market prospects werealso partly responsible for the tightening ofbanks’ credit standards, which played animportant role in the moderation of loan growth.The moderation of the annual growth rate ofloans for house purchase also reflected thedampening impact of the increases in key ECBinterest rates as of December 2005. Continuingthe trend observed in 2006 and 2007, althoughat a slower pace, MFI interest rates on loans forhouse purchase rose by 31 basis points betweenDecember 2007 and September/October 2008,before declining by 10 basis points in the fourthquarter (see Chart 16). The increase observedin the first three quarters of the year was broadlybased across the maturity spectrum, althoughit was slightly larger for loans with initial ratefixation periods of up to one year and betweenone and five years.48 ECBAnnual Report2008