Euro-area financial institutions signaled they may make it easier for companies to get loans for the first time in more than six years, which may help the region’s recovery gather momentum.
The European Central Bank said in a quarterly survey that banks expect to relax standards on corporate lending this quarter. That’s the first such response since the fourth quarter of 2009 and, if it occurs, would mark the first easing of conditions since the second quarter of 2007. Lenders also plan to ease access to consumer loans and mortgages, and predicted a rise in loan demand across all categories.
“This is a cautiously encouraging survey,” said Marie Diron, a senior economic adviser to Ernst & Young LLP in London. “This would be very good news for the euro-zone economy. So far, our forecast is based on a more cautious assumptions that credit conditions will remain tight for some time.”
ECB President Mario Draghi has cited “subdued” credit dynamics as one reason for his pledge to keep official interest rates at or below current levels for an extended period to support the region’s economic recovery. The Frankfurt-based ECB also expects that its review of bank balance sheets next year will rebuild confidence in financial institutions.
“We have, frankly, strong hopes that credit will recover before the end of the asset quality review,” Draghi said after this month’s policy meeting on Oct. 2. “We would be in a very bad shape if credit were not to recover by then.”
The ECB survey coincided with a report from the European Commission showing that economic confidence in the euro-area rose more than economists forecast in October. An index of executive and consumer sentiment increased for a sixth month to 97.8 from 96.9 in September. That was the highest in more than two years and exceeded the median estimate of 97.2 in a Bloomberg News survey of 31 economists.
Separate data showed German unemployment rose for a third month in October, with the number of people out of work climbing a seasonally-adjusted 2,000 to 2.97 million. The adjusted jobless rate was unchanged at 6.9 percent. Even so, Germany’s labor market “remains solid,” said Carsten Brzeski, an economist at ING Bank NV.
Banks reported an improvement in their access to retail and wholesale funding in the third quarter, the ECB said today. Lending to companies and households has contracted for the past 17 months, separate data from the central bank show.
The survey, which was conducted among 133 banks between Sept. 25 and Oct. 10, “confirmed the ongoing stabilization in credit conditions for firms and households in the context of still weak loan demand,” the ECB said. “Borrowers’ risk related to their business outlook and macroeconomic uncertainty remained the main factor explaining bank-lending policies.”
While banks tightened credit standards in the three months through September, the tightening for company loans and mortgages was less than in the second quarter, the ECB said. It became more difficult to get a consumer loan.
Demand for company loans declined in the third quarter. Requests for consumer credit rose and applications for mortgages increased for the first time in almost three years, the survey showed.