Analyzing Banks' Opinions on the Loan Supply and Loan Demand Using Multi-Country Bank Lending Survey Data

In the aftermath of the financial crisis, understanding the lending behavior of banks has become more important than ever. In this context, bank lending surveys, which are regularly conducted by central banks, enable us to disentangle the drivers of loan supply and loan demand. This paper attempts to analyze the information content of lending surveys, by making advantage of the cross-sectional dimension of seventeen comparative country data. Statistical analyses support that in overall, banks tend to report tighter lending standards, whereas they are more neutral in evaluating the loan demand. In addition, an asymmetrical behavior exists for price and non-price conditions where banks applied stricter terms during tightening periods, whereas they opt to loosen their terms and conditions to a lesser extent during easing periods. Another question that this paper tries to answer is about the directional accuracy of qualitative forecasts- in other words, how well the banks’ opinions in predicting the future behavior of the loan supply or the loan demand are. Results of the directional analysis, which is performed to assess the usefulness of bank lending surveys, indicate that forecasts are valuable in predicting the change in the loan supply and loan demand, while forecasters’ ability differs across periods of increasing and decreasing loan supply and loan demand.