Banks' credit clampdown seen tightening: ECB

Wed Jul 25, 2012 5:51am EDT
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By Eva Kuehnen

FRANKFURT (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 revitalize 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 corseting 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.   Continued...

A structure showing the Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt July 11, 2012. REUTERS/Alex Domanski