The Central Bank of Iceland’s quarterly survey of four commercial banks found that household and corporate credit supply was unchanged over the preceding three months, while banks expect lending rates and interest premia to rise across most loan categories over the next six months. Mortgage supply and demand are expected to increase, but corporate credit supply is expected to remain stable and demand among small companies to weaken further. Household mortgage demand contracted marginally over the preceding three months. Household lending rules remained unchanged and are expected to stay so over the next six months. Rates and interest premia on inflation-indexed household loans are expected to rise, partly because of an anticipated bank tax increase and expectations that inflation will fall faster than the central bank’s key interest rate. Banks also expect slightly higher rates and premia on non-indexed mortgages because of the anticipated tax increase. Non-indexed household lending rates had already risen following an increase in the key rate, although interest premia declined slightly. Demand for long-term corporate credit declined slightly among both small and large companies, while large companies’ demand for foreign-denominated loans increased slightly and is expected to keep growing. Corporate lending rules were unchanged overall, although company and sector prospects and collateral risks prompted tighter rules for short- and long-term loans to large companies. Banks expect higher rates and premia on indexed corporate loans and foreign-denominated corporate loans, with anticipated lower funding costs partly offsetting upward pressures. Rates and premia on non-indexed loans to small companies are also expected to rise slightly, while rates on such loans to large companies are expected to remain unchanged.

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