FRANKFURT: Europe’s financial sector is showing further signs of mending and banks are increasingly competing for custom by easing credit standards, a key European Central Bank (ECB) survey showed on Tuesday.
The ECB said its quarterly bank lending survey (BLS) showed banks are easing credit standards for loans to companies, an encouraging sign, since the chronic weakness of credit activity in the euro area has previously been blamed for the absence of any noticeable recovery in the 19 countries that share the single currency.
“Euro area banks reported a further net easing of credit standards on loans to enterprises in the second quarter of 2016. This was slightly more pronounced than banks had expected in the previous survey round,” the ECB wrote.
“Competitive pressure remained the main factor driving this easing. In addition, credit standards on loans to households for house purchase eased marginally following a net tightening in the previous quarter,” it said.
At the same time, demand for loans is also increasing, the ECB found.
“Net demand for loans continued to increase across all loan categories. The main contributing factors for net demand for loans to enterprises in the second quarter of 2016 were merger and acquisition activities, inventories and working capital, the general level of interest rates, and debt refinancing,” the ECB said.
“Net demand for housing loans was driven by the low general level of interest rates, continued favorable housing market prospects, and consumer confidence.”
The eurozone central bank has previously complained that its ultra-easy monetary policy had not been feeding through into the real economy, because banks are not passing the money on in loans, particularly to the small and midium enterprises which are the region’s economic backbone.
In an attempt to address this, the ECB stepped up its controversial program of sovereign bond purchases, known as quantitative easing or QE, in March and also made ultra-cheap loans available to banks on condition they lend it on to the real economy.