Eurozone banks see tighter credit conditions ahead: ECB

28th July 2011, Comments 0 comments

Eurozone banks expect to tighten credit for companies in coming months but conditions for household consumer loans could be slightly less restrictive, the European Central Bank said on Thursday.

For housing loans, banks planned to maintain a slightly restrictive bias in the third quarter, an ECB survey found, with its results sketching out the financing landscape as economic growth slows across the 17-nation eurozone.

A separate survey by the Ifo research institute found that firms in Germany, the biggest eurozone economy, assessed current credit conditions as favourable, however.

Results of the ECB survey showed meanwhile that eurozone banks felt their own access to credit on money markets had deteriorated and that access to bond markets in particular was less favourable than earlier in the year.

The ECB's latest Bank Lending Survey said the 124 institutions asked about conditions in the second quarter "generally reported a slight decline in net tightening of credit standards in comparison with the first quarter of 2011."

But looking to the third quarter, they "expect a slight increase in the net tightening of credit standards for enterprises, to six percent," amid concern over the outlook for medium-term economic growth, a statement said.

That means that six percent more banks expect to make conditions tougher than those that planned to ease credit standards.

Demand for loans from businesses remained positive but weakened in the second quarter, while households sought less credit overall, the survey found.

A worrying development was that banks said they were themselves finding it harder to borrow money and that the deterioration in access to debt securities markets in particular "was more pronounced than in the previous survey."

For Ernst & Young debt expert Dougald Middleton, "What this means for corporate borrowers is that funding will be more difficult to come by and is increasingly expensive."

Capital Economics economist Ben May said the findings suggested that "domestic demand in the region as a whole will struggle to pick up the slack from the flagging external sector."

In Brussels meanwhile an economic confidence indicator published by the European Commission fell in July for the fifth month running, underpinning concern about a growing economic slowdown.

© 2011 AFP

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