FRANKFURT Banks made it harder for firms to borrow in the third quarter and expect to toughen loan requirements further, even though their own funding constraints have eased, the European Central Bank said on Wednesday.
Worried about the weak economy and tougher regulations that are squeezing their margins, banks are retrenching and slashing costs. UBS announced plans on Tuesday to fire 10,000 staff and Deutsche Bank increased its job loss target by nearly 100 to 1,993 staff.
In its latest quarterly Bank Lending Survey, the ECB said that while banks see lower demand and tighter standards, they also reported an improvement in access to retail and wholesale funding across all funding categories in the third quarter.
"Banks reported an improvement in their access to retail and wholesale funding across all funding categories," the ECB said.
"For the fourth quarter of 2012, banks expect funding conditions to keep improving."
However, analysts said that while this showed the central bank's emergency measures are helping banks, weak demand means the economic situation remains precarious.
Separate ECB data showed that firms and consumers in countries tainted by the sovereign debt crisis are still paying much higher interest rates for bank loans than those in stronger northern European economies.
"The ECB will take some comfort with regard to access to wholesale markets with improvement reported," Nomura economist Nick Matthews said.
"The key question will be how long this will persist," he added, pointing to the sovereign debt crisis and risks that it could intensify again.
Banks cited general economic expectations as well as their industry- or firm-specific outlook as a reason for tightening up on loans.
Although banks in the bloc's more vulnerable states have suffered from their exposure to the debt crisis and Spain had to ask for a banking sector bailout from its European partners, the effect of public funding woes eased from the April-June period.
"Compared with the previous quarter, the impact of the sovereign debt crisis on banks' credit standards receded somewhat in the third quarter of 2012," the ECB said.
The ECB said that a net 15 percent of the euro zone banks that took part in the survey tightened their criteria for firms to borrow in the third quarter, up from 10 percent in the second quarter. Almost the same number expect to harden their standards further in the last three months of the year.
"Factors driving the tightening credit standards are less related to supply issues such as banks' capital position or access to market financing, it's increasingly a demand-side story," Nomura's Matthews said, referring to the weak economy.
"Banks are looking at the general economy and the risks there," he said.
The survey showed banks expect demand from firms, consumers and house buyers to weaken further in the fourth quarter.
Demand fell especially strongly in Italy, with more than half the banks saying corporate loan demand fell. In Germany, which has weathered the sovereign debt crisis much better than its euro zone peers, less than 10 percent of banks said the demand fell in the third quarter.
Mortgage loans, often seen as a forerunner of broader credit trends, fell further, albeit at a slightly slower pace.
Demand fell especially in southern Europe, country-by-country data showed, whereas almost one-third of German banks reported higher mortgage loan demand in July-September, and roughly the same number of banks there expect demand to rise further in the last three months of the year.
(Reporting by Sakari Suoninen; Editing by Ruth Pitchford)