Oct. 28 (Bloomberg) -- European banks expect to ease credit standards for companies in the fourth quarter after tightening them less aggressively in the third, the European Central Bank said.

“For the fourth quarter of 2009, the euro-area banks expect a slight net easing of credit standards for loans to enterprises,” the Frankfurt-based ECB said in its bank lending survey published today. In the third quarter, a net 8 percent of the banks surveyed reported a tightening in credit standards for enterprises, down from a net 21 percent in the second quarter, the ECB said.

“It’s a very good sign,” said Colin Ellis, European economist at Daiwa Securities SMBC Europe Ltd. in London. “But we’ve seen so much credit tightening in the past two years that a slight easing won’t make much of a difference. I wouldn’t expect such a small change to have a big impact on the economy.”

The worst recession since World War II has made banks reluctant to lend and eroded company and household demand for credit. While the euro-area economy may have resumed expansion in the third quarter, growth is likely to remain muted unless credit flows improve and spending increases.

The bank lending survey “confirms the indications of a turning-point in the tightening trend,” the ECB said. “At the same time, it needs to be kept in mind that the cumulated net tightening during the financial turmoil has not yet started to reverse itself and remains very substantial.”

ECB Easing

German banks tightened credit standards for companies less aggressively in the third quarter compared with the second and expect this trend to continue in the final three months of the year, the Bundesbank said. Company demand for loans rose “perceptively,” it said.

The ECB, which cut its benchmark interest rate to a record low of 1 percent in May, is buying covered bonds and providing banks with as much cash as they want in an effort to revive lending.

Loans to households and companies in Europe posted their first annual decline on record in September, the central bank said in a separate report yesterday.

The world’s largest financial-services companies have racked up more than $1.6 trillion of losses and writedowns since the start of the worst financial crisis since the Great Depression, according to data compiled by Bloomberg.

Banks tightened credit standards for households less aggressively in the third quarter and expect that trend to continue in the fourth, the ECB said today.

“All in all, the October 2009 Bank Lending Survey results point to some relief in the situation of banks in the third quarter, reflecting the ongoing normalization of the market conditions they are facing,” it said.

The ECB surveyed 118 euro-area banks between Sept. 14 and Oct. 2.

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net.

Last Updated: October 28, 2009 08:40 EDT