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Eurozone lending still weak: ECB

Eurozone lending to the private sector remains weak, despite the vast amounts of cheap cash banks in the region recently borrowed from the European Central Bank, data showed on Monday.

xThe ECB said in a regular monthly report that growth in loans to the private sector slowed to just 0.6 percent in March from 0.8 percent in February.

The slowdown is of particular concern given that, in two special measures in December and February aimed at averting a credit squeeze in the 17-nation eurozone, the ECB lent more than 1.0 trillion euros ($1.3 trillion) to banks at a rock-bottom rate of 1.0 percent for a period of three years.

The thinking behind the unprecedented moves was that banks would lend the cheap funds on to businesses and households and keep credit flowing in the debt-wracked eurozone economy.

However, the cash does not appear to be trickling through into the real economy just yet, the data suggested.

But that seems to be more because overall demand for credit remains weak, rather than the unwillingness of banks to make loans available, analysts say.

Last week, in its regular quarterly survey on bank lending, the ECB found that a tightening of credit conditions had eased “substantially” in the first three months of this year and banks were expecting that trend to continue in the second quarter as well.

Nevertheless, small- and medium-sized businesses still complained that getting bank loans has become harder, according to a separate ECB survey.

IHS Global Insight economist Howard Archer warned that the latest lending data meant that tight credit conditions “remain a serious concern for eurozone growth prospects.”

A further modest monthly fall in lending to businesses in March and a slowdown in the growth rate in lending to households “fuel concern that the ... trillion euros loaned to European banks by the ECB is not feeding through to boost lending to the private sector — at least for now,” he said.

“While this could yet happen, the hard evidence so far is disappointing even allowing for limited demand for credit from the private sector,” he concluded.

Newedge Strategy analyst Annalisa Piazza said the latest ECB lending survey “clearly showed that — despite a solid improvement in net tightening — demand for loans remained depressed in the first quarter of 2012, as both households and businesses have a very cautious approach, given the current uncertainties surrounding the economic environment.”

Postbank economist Heinrich Bayer agreed.

“Weak credit is largely due to low demand rather than the restrictive lending policies of banks,” he argued.

“It’s more a symptom rather than a cause of the economic weakness in the euro area,” Bayer said.

UniCredit economist Loredana Federico believed that said the ECB’s liquidity moves have “substantially reduced the risk of a credit crunch and the weakness in the credit cycle at this stage seems to mainly reflect subdued loan demand.”

She expected loan demand from non-financial corporations, which lags the business cycle, to remain weak for most of this year.

The ECB also calculated that growth of the eurozone money supply, a key indicator of demand in the economy, picked up again in March, with the M3 indicator rising to 3.2 percent last month from 2.8 percent in February.

The ECB regards the M3 figure as a key guide to inflation pressures and uses it to set interest rates accordingly.

The central bank seeks to keep eurozone inflation below but close to 2.0 percent and it eased slightly to 2.6 percent in April from 2.7 percent in March, according to a first estimate from the European Union’s Eurostat agency.