Banks across the eurozone are set to expand lending further in the second quarter, even as the European Central Bank's ultra-easy monetary policy erodes profitability, an ECB survey showed on Tuesday. Banks may slightly tighten access to credit for companies in the second quarter but corporate, household and consumer loan volumes will continue to rise, helped by ultra low rates, ECB said.
Aiming to keep financial conditions exceptionally easy, the ECB has cut interest rates into negative territory and buys 60 billion euros worth of assets per month, all in the hope of reviving growth and inflation. While the negative rates and asset buys have improved access to finance, most banks said the overall impact on profits was negative as the hit on margins was not offset by capital gains or the higher volumes.
Indeed, separate data by the ECB out on Tuesday showed that euro zone banks' return on equity dropped to 3.23 percent in the fourth quarter from 4.41 percent a year earlier, while return on assets fell to 0.21 percent from 0.28 percent. Banks in Italy, Portugal and Greece all had a negative return while banks in Germany, weighed down by excessive competition and inefficiency, made a return on equity of just 1.33 percent, the figures showed.
Corporate credit standards eased somewhat in the first quarter as expected. But even after years of loose monetary policy, access to credit is still tighter than in a historical range since 2003, the ECB said in the bank survey. "Across the large euro area countries, net demand for loans to enterprises increased in Germany and Spain, whereas it declined in Italy and the Netherlands, and remained unchanged in France," the ECB said. The net easing in corporate loan terms came at the cost of tighter margins, with easing collateral requirements and broadly steady non-interest rate charges.
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