July 25, 2012 / 9:48 AM / 5 years ago

UPDATE 1-Banks' credit clampdown seen tightening-ECB

 (Adds economists' comments, detail, background)
 * Banks see steady tightening of loan standards in Q3
 * Demand for credit to remain weak
 * Survey findings underscore policy dilemma for ECB
 By Eva Kuehnen
 FRANKFURT, July 25 (Reuters) - Banks expect to toughen their
lending rules further in coming months and see feeble demand for
loans from firms and consumers, underscoring the dilemma
European Central Bank policymakers face as they try to
revitalise the euro zone's economy. 
 In its latest quarterly Bank Lending Survey, the ECB said 11
percent of banks that took part made it harder for companies to
borrow in the second quarter, whereas only one percent eased
their requirements. The 10 percent net figure was slightly more
than the 9 percent in the first quarter. 
 Banks have been continually tightening their lending
standards over the last three years in the wake of the euro
zone's troubles and to cope with stricter regulation, a trend
which is corsetting economic growth in the currency bloc.
 The ECB's survey made grim reading. 
 "Looking ahead to the third quarter, banks expect a
continued decline in the net demand for loans, both for
enterprises and households, even if less negative than in the
second quarter," the survey said. 
 Banks also expect to keep tightening credit standards for
loans at a stable rate in the third quarter.    
 The survey is further proof that the beneficial impact of
the ECB's injection of more than 1 trillion euros in ultra-cheap
loans to banks has evaporated quickly. 
 It could prompt the ECB to consider repeating the move,
something they have shown little appetite for as yet. 
 Banks that took part in the survey, which was conducted over
a two-week period which straddled the most recent EU summit on
June 28-29, revealed that the euro zone crisis had had a greater
impact on banks' funding conditions than in the first quarter.  
 Demand for mortgages, often seen as a forerunner of lending
trends, saw its recent demand slump slow in the second quarter.
A net 21 percent of banks saw a drop in demand compared with 43
percent in the first quarter.   
 More general consumer demand for loans remained broadly
unchanged with a net 27 percent of banks seeing a slowdown. 
 Demand for loans is weakening as the euro zone economy heads
for its second recession since 2009. Business surveys showed on
Tuesday that Europe's private sector looked set for a prolonged
 Banks in the euro zone's periphery are particularly
strained, faced with elevated funding costs in the market as
investors demand a higher premium to invest in countries like
Spain and Italy that are now at the centre of the debt crisis.
                                               Q2    Q1     
 - Loans to businesses     
 Reporting tighter credit standards this quarter  10     9    
 Reporting higher loan demand this quarter       -25   -30
 Expecting tighter credit standards next quarter  10     2    
 Expecting higher loan demand next quarter        -8     7    
 - Mortgage loans to households     
 Reporting tighter credit standards this quarter  13    17    
 Reporting higher loan demand this quarter       -21   -43    
 Expecting tighter credit standards next quarter   5     7    
 Expecting higher loan demand next quarter       -10   -12    
 The survey of 130 banks was conducted from June 21 to July
 For a copy of the survey, click on: here

 (Reporting by Eva Kuehnen and Marc Jones; editing by Stephen

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