Central Bank of Iceland revises lending survey rate question and reports slightly tighter mortgage supply

The Central Bank of Iceland published its quarterly lending survey of the four commercial banks, indicating a slight contraction in the supply of household mortgage credit over the past three months and tighter mortgage lending rules, while the supply of corporate credit was unchanged. It also amended survey question 8 on lending rates by splitting corporate lending into price-indexed, non-indexed and foreign-denominated categories to better capture diverging interest rate developments and expectations. Banks reported a marginal decline in household demand for mortgages, car loans and other unsecured lending, but expect slightly higher demand for mortgages and car loans over the next six months; mortgage lending standards tightened and are expected to tighten further, citing access to market funding and the management of interest rate and indexation imbalances. Interest rates on indexed household loans rose, with slightly lower premia, and are expected to fall as banks assume lower policy rates and funding costs, while non-indexed household loan rates fell and are expected to continue declining. On corporate lending, demand from both small and large firms increased slightly and is expected to keep rising, lending standards are expected to remain unchanged, and competition is expected to increase marginally from banks, non-bank lenders and market funding; indexed rates for small firms rose on higher funding costs but are expected to ease slightly, while non-indexed corporate rates and premia declined and are expected to continue falling, and foreign-denominated corporate loan rates and premia fell but are expected to be broadly stable as lower funding costs and the regulatory environment offset each other.