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Euro-Area Banks Tighten Credit Standards on Companies, Consumers, ECB Says
European banks continued to tighten credit standards for companies and households in the second quarter as the sovereign debt crisis impaired their access to funding, the European Central Bank said.
“The downward trend in the net tightening of credit standards on loans to enterprises, which came to a halt in the first quarter of 2010, was reversed in the second quarter, increasing from 3 percent to 11 percent,” the Frankfurt-based central bank said in its quarterly Bank Lending Survey today. “Looking forward, euro-area banks anticipate credit standards on loans to enterprises to tighten somewhat in the third quarter.”
Recent data suggest Europe’s economic recovery may be stronger than expected, boosting demand for credit. Growth in the region’s manufacturing and services industries unexpectedly accelerated in July and business confidence in Germany surged to a three-year high. At the same time, government spending cuts implemented in response to the debt crisis may slow growth in the months to come.
“Risks of credit-supply constraints emerging in a number of euro-zone countries are still high,” said Luigi Speranza, an economist at BNP Paribas in London. “This could limit growth prospects, in line with past experiences following financial crises.”
Loan Growth
Loans to households and companies in Europe grew at the fastest pace in 20 months in June, a report showed yesterday. The ECB expects the 16-nation euro-region economy to expand 1 percent this year and 1.2 percent in 2011.
“The demand for loans perceived by banks continues to recover,” the ECB said today. Still, “negative spillover effects from the sovereign debt crisis appear to have worsened banks’ ability to obtain funding. Over the next three months, banks expect that the current difficulties in accessing wholesale funding will remain, although not to the same extent as observed in the second quarter of 2010,” the ECB said.
In Germany, credit standards for companies were unchanged in the second quarter from the first after the economic outlook improved and banks’ liquidity positions remained “good,” the Bundesbank said in a separate statement. Banks aren’t planning to adjust their credit standards in the third quarter, the Frankfurt-based central bank said.
No Credit Crunch
Demand for loans increased “noticeably” and “banks don’t share the fear that credit supply will be too restrictive for the German economy as the recovery continues,” the Bundesbank said, adding there are no signs of an impending credit crunch.
The Basel Committee on Banking Supervision on July 26 agreed to soften some of its proposed capital and liquidity rules. France and Germany have led efforts to weaken rules proposed by the committee in December, concerned that their banks and economies won’t be able to bear the burden of tougher capital requirements until a recovery takes hold.
Bankers including Deutsche Bank AG Chief Executive Officer Josef Ackermann have said that the new rules may force banks to reduce lending, potentially limiting economic growth.
“The factors contributing to the reinforced net tightening of loans to enterprises relate to the deterioration of banks’ own balance sheet situation, particularly as regards their liquidity position and access to wholesale funding,” the ECB said. “At the same time, slight improvements in credit risk, and to some extent in general economic conditions, were perceived by reporting banks.”
The degree of net tightening of credit standards on loans to households for house purchase was unchanged at 10 percent, exceeding the 2 percent expected at the time of the previous survey round, the ECB said.
“Similarly, the degree of net tightening remained broadly unchanged for consumer credit, at 12 percent, compared with an expected 2 percent in the previous survey round.”
To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net.
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