European Banks’ Company Lending Drops 2.6% in February, ECB Says

Euro-area banks’ lending to companies in the region declined in February as the financial crisis hurt economic growth and forced lenders to divert capital to restructuring their businesses.

Total outstanding loans to firms, excluding financial institutions, fell an annual 2.6 percent to 4.51 trillion euros ($5.9 trillion), the European Central Bank said in its monthly report published on its website today.

“The current economic conditions and persistently high uncertainty continue to be reflected in weak demand for bank loans,” the Frankfurt-based ECB said. “Constraints on supply side weigh on credit growth in a number of euro-area countries.”

Banks are bolstering their balance sheets to comply with stricter regulations designed to help stop them from failing. That’s making some loans such as longer-term project financing more expensive because the banks are required to set aside more capital.

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