ECB Says Banks Set to Stop Tightening Corporate Credit Standards

The European Central Bank sees signs that lenders will stop tightening corporate credit standards this quarter after preparing their balance sheets for a comprehensive review.

“Euro-area banks expect, in net terms, the net tightening of credit standards for loans to non-financial corporations to come to a complete halt” in the three months through March and see “a more intense net easing for loans to households,” the ECB said in its quarterly Bank Lending Survey today. “Banks expect, in net terms, an increase in demand across all loan categories for the first quarter of 2014.”

Lending to companies and households has shrunk for more than 1 1/2 years as weakness in the euro area damps demand. The contraction may have been exacerbated as banks took steps to clean their balance sheets before an ECB review and stress tests this year.

Lenders reduced their risk-weighted assets in the second half of 2013 and strengthened their capital position by issuing capital and retaining earnings, according to the ECB, which surveyed 133 banks from Dec. 13 to Jan. 9.

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