ECB Says Banks Tightened Credit Standards in Fourth Quarter

The European Central Bank said euro-area banks tightened credit standards in the fourth quarter as demand for loans declined.

“The net tightening of credit standards by euro-area banks for loans to enterprises was broadly stable in the fourth quarter of 2012,” while “net tightening in the fourth quarter of 2012 increased for loans to households for house purchase and for consumer credit,” the Frankfurt-based ECB said in its quarterly Bank Lending Survey today. Banks expect to tighten credit standards for loans to companies at a similar degree in the first quarter.

Lending to households and companies in the euro area contracted for an eighth month in December after the sovereign debt crisis pushed the 17-nation region into its second recession in four years. ECB President Mario Draghi said on Jan. 10 that credit conditions will improve this year even as weak economic activity weighs on credit demand.

Banks reported a “pronounced net decline” in demand for company loans in the fourth quarter, the ECB said. They expect a “less pronounced” decline in the first three months of the year.

“The net decline in the fourth quarter of 2012 was driven mainly by a substantial negative impact from fixed investment on the financing needs of firms,” the ECB said. “Mergers and acquisitions and inventories and working capital contributed less to the net decline in demand for loans to enterprises.”

New regulation and capital requirements continued to contribute to a net tightening of credit standards, the ECB said. At the same time, banks’ access to retail and wholesale funding improved in the fourth quarter and the effect of the debt crisis on funding conditions abated significantly, according to the report.

Some 131 banks participated in the survey, which was conducted between Dec. 14 and Jan. 10.

Before it's here, it's on the Bloomberg Terminal.