ECB Says Banks Tightened Credit Standards Less in First Quarter

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

“The net tightening of credit standards by euro area banks for loans to enterprises declined in the first quarter of 2013,” the Frankfurt-based ECB said in its quarterly Bank Lending Survey today. “Borrowers’ risk and macroeconomic uncertainty remain the main concerns of euro area banks in setting their lending policies.”

Lending to households and companies in the euro area contracted for a 10th month in February as the 17-nation region struggles to emerge from recession.

Funding conditions, particularly for small and medium-sized enterprises are “tight” and “will continue to weigh on economic activity,” ECB President Mario Draghi said on April 4.

The Governing Council, which skirted a debate on how to boost lending to SMEs during this month’s policy meeting, has recently asked committees to develop proposals. Small firms account for about half of all employment in Italy and Spain, compared with about a third in France and Germany.

The decline in demand for housing and consumer loans accelerated in the first quarter, the ECB said.

The ECB said banks’ access to retail and wholesale funding improved in the first quarter. The impact of sovereign debt tensions on some banks’ funding conditions “marginally abated” in the first quarter of 2013, according to the report.

“Looking ahead, for the second quarter of 2013 euro area banks expect a considerably less negative net decline in demand for housing loans,” the ECB said in the report.

Manufacturing and services output contracted for a 15th month in April, jeopardizing Draghi’s scenario of an economic recovery in the second half of the year. With policy makers standing “ready to act” and Germany’s economy also showing signs of weakness, chances for an interest-rate cut next week have increased.

The ECB said 135 banks participated in the survey, which was conducted between March 20 and April 4.

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