Wednesday 24 July 2013 4:42 am

Eurozone banks tighten credit standards despite plunging loan demand and better funding conditions

By: Chris Harlow

The European Central Bank has reported an improvement in funding conditions among eurozone banks in the second quarter of the year, but a tightening of credit standards for both companies and mortgages despite expectations of a further fall in loan demand.

In its latest bank lending survey, the ECB found that a net seven per cent of banks tightened credit standards for non-financial corporations and housing loans in the second quarter – unchanged in the case of businesses but down from 14 per cent in the case of mortgages. The main factors restricting lending were borrower's risk and macroeconomic uncertainty.

This tightening of standards comes in spite of plunging loan demand, with a net 18 per cent and two per cent reporting lower demand from businesses and mortgages respectively. However, constricted demand has moderated somewhat from a respective net 24 and 26 per cent reporting lower demand in the first quarter, and is expected to ease more to a net one per cent reporting falling demand next quarter.

In response to ad hoc questions from the ECB, banks reported an improvement in access to retail and wholesale funding across all funding categories in the second quarter, although this is more limited than in the first quarter and banks expect a further deterioration over the next three months (with the exception of retail funding). However, they also indicated that the impact of the soveriegn debt crisis on access to credit has abated significantly.