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Eurozone banks set to tighten loan terms: ECB

27 april 2011, 19:04
European Central Bank. AP©
European Central Bank. AP©
Eurozone banks intend to tighten credit slightly for both companies and households, the European Central Bank said on Wednesday when it published its latest bank lending survey, AFP reports.

Eurozone credit conditions had already become somewhat more restrictive in the first quarter of 2011, though they eased markedly in Germany, the biggest economy in the 17-nation bloc, a separate poll showed.

The results were published a few weeks after the ECB raised its benchmark interest rate to 1.25 percent, the first increase since July 2008.

After raising the bar for loans in the first three months of the year, "euro area banks expect a further moderate tightening of credit standards for both NFCs (non-financial corporations) and households in the second quarter," an ECB statement said.

The bank commented after polling 124 eurozone banks as part of a quarterly exercise aimed at giving an overview of credit conditions within the 17-nation bloc.

Credit is crucial to funding companies' operations and the data also gives an idea of whether households will be likely to buy big ticket items, giving the economy a boost through consumption.

Looking at credit to companies, the ECB survey found that a net four percent of the banks questioned said that lending criteria had become slightly more strict in the first three months of the year.

That was in part owing to the banks' own ability to access market financing and the amount of cash they had on hand.

Perceptions of corporate risks and "the overall economic situation" were also cited as reasons for increased prudence.

As for lending to households, a net 13 percent of banks said their credit conditions had already become more strict, for much the same reasons along with concerns over housing market developments and creditworthiness of borrowers.

The poll of more than 7,500 firms was done in late February and early March by the ECB on behalf of the European Commission, which estimates that economic activity will expand by 1.6 percent this year.

The Commission has warned however that growth will be uneven across the 17-nation bloc.

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