Euro-Area Bank Lending Sees Longest Rising Streak Since 2011

Lending to companies and households in the euro area rose for a fourth month in February, signaling that the European Central Bank’s record monetary stimulus is finally reaching the real economy.

Euro-area bank lending climbed 0.2 percent from January, the ECB said on Thursday. The run of monthly increases is the longest since October 2011.

The ECB has used an array of instruments to encourage credit supply in recent years to bolster the region’s fragile recovery. The latest evidence that banks are becoming more confident in their ability to lend came from an allotment of targeted long-term loans last week that was higher than analysts forecast.

ECB President Mario Draghi has long pointed to cautious signs of improvement. He told European Parliament lawmakers on Monday that “the easing of lending conditions is progressing hand-in-hand with a resurgent demand for credit to finance business investment” that will increase potential output in the longer term.

“Interest-rate reductions are being transmitted to the whole financial intermediation channel and credit shrinkage is receding,” he told Italian lawmakers in Rome on Thursday. “The falling cost of financing makes investment opportunities that in the past were not profitable interesting.”

Frail Recovery

The recovery in lending remains frail. Loans fell 0.1 percent from a year earlier, extending a run of annual declines that started in May 2012, the ECB statement showed.

Still, banks are showing they are willing to take central-bank cash offered at record-low interest rates. The ECB handed 97.8 billion euros ($108 billion) to euro-area financial institutions on March 19 at a rate of 0.05 percent in the third round of its program to boost lending.

The institution has also bought covered bonds since October and asset-backed securities since November, and expanded purchases to include sovereign debt this month. It intends to spend 1.1 trillion euros on assets through September 2016.

The ECB estimates that as long as its monetary stimulus is implemented in full, economic growth will accelerate from 0.9 percent last year to 2.1 percent in 2017 -- a pace of expansion the region hasn’t seen since 2007.

“A sustained recovery is taking hold,” Draghi said in Frankfurt on March 16. “We can rightly be optimistic about the outlook.”

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