Europe's battered financial sector is showing tentative signs of healing, even if it is still too early to sound the all-clear, a key ECB survey showed on Wednesday. Banks are about to ease up on credit conditions and increase the availability of loans for businesses, the survey suggested pointing to an important factor in the dynamics of the still sluggish eurozone economy.
But demand for business loans remains weak. Credit conditions in the euro area are still being tightened, but are set to start to ease again in coming months, the European Central Bank found in its quarterly bank lending survey. The net percentage of banks expecting to tighten their loan criteria for businesses and households eased to 5.0 percent in the third quarter from 7.0 percent in the second quarter, the ECB said. And in the fourth quarter, banks are actually projecting a net easing of credit conditions for enterprises for the first time since the end of 2009.
"The October 2013 Bank Lending Survey confirmed the ongoing stabilisation in credit conditions for firms and households in the context of still weak loan demand," the ECB wrote. Similarly, lending conditions for both consumer credit and housing loans are also expected to ease for the first time since the end of 2010.
In the third quarter, the net percentage of bank reporting a tightening of credit standards for housing loans to households fell to 3.0 percent from 7.0 percent, while for consumer credit there was a marginal net tightening, following an easing in the previous quarter. Nevertheless, "across all loan categories, the net tightening of credit standards in the third quarter of 2013 stands below historical averages calculated over the period since the start of the survey in 2003," the ECB said. The ECB also found that access by banks to retail and wholesale funding had continued to improve in the third quarter of 2013 as tensions in the sovereign debt markets continue to decline.
Turning to loan demand, euro area banks continued to report a net decline in the demand for loans to enterprises in the third quarter of 2013, albeit to a lower degree than in the previous quarter. For housing loans, banks indicated a net increase in demand for the first time since the fourth quarter of 2010, "to a level well above its historical average." And the net demand for consumer credit turned marginally positive in the third quarter of 2013. "Looking ahead to the fourth quarter of 2013, banks expect in net terms an increase in demand across all loan categories," the ECB said. Economists were heartened by the data. Marie Diron at EY Eurozone Forecast said the ECB "will be relieved that its Bank Lending Survey gives no broad-based evidence that banks are tightening credit conditions ahead of the Asset Quality Review (AQR). "Overall, this is a cautiously encouraging survey that suggests that banks are gradually becoming more confident in the economic outlook and are facing fewer funding difficulties," she said.