FRANKFURT (MNI) – Eurozone banks expect the slide in loan demand to
slow in 4Q, after expectations that the decline would ease failed to
materialize in 3Q, according to the European Central Bank’s quarterly
Bank Lending Survey, released Wednesday.

Expectations that net tightening of credit standards would ease in
the 3Q were disappointed. The tightening of credit conditions is
expected to continue over the next three months at a similar pace to the
third quarter as access to funding is expected to continue to recover,
banks told the ECB.

In the survey of 131 institutions, conducted between 20 September
and 9 October, euro area banks continued to report “a pronounced net
decline in the demand for loans to enterprises” in the third quarter.
The balance was somewhat more negative than in the previous survey round
(-28% in 3Q vs -25% in 2Q).

The ongoing net decline in demand for loans to households for house
purchase accelerated slightly (-25% in 3Q vs -21% in 2Q) whereas the net
decline in demand for consumer credit abated somewhat (-22% in 3Q vs
-27% in 2Q)

“Looking ahead to the fourth quarter of 2012, banks expect a
continued net decline in the demand for loans, both for enterprises and
households, even if on balance less negative than in the third quarter
of 2012,” the ECB said in a statement.

ECB President Mario Draghi recently attributed subdued lending
“to a large extent” to the weak economic outlook, risk aversion and
the ongoing balance sheet adjustment of Eurozone firms and households.
The European Commission’s Business Climate Indicator dropped in October
to its lowest level since September 2009, when the Eurozone was in deep
recession. Household morale recovered only slightly from September when
it had hit the lowest level in three years.

Weak demand may also be partially due to the ongoing tightening of
lending conditions that is expected to continue in the months ahead. “In
a number of euro area countries, the segmentation of financial markets
and capital constraints for banks restrict credit supply,” Draghi noted.

Today’s survey shows that banks’ tightening of credit standards for
loans to enterprises increased in the third quarter of 2012 (15% in 3Q
vs 10% 2Q) disappointing previous expectations of a slowdown in net
tightening.

“For loans to households for house purchase the net tightening was
broadly stable in the third quarter of 2012 (12% in 3Q vs 13% 2Q), while
the net tightening declined slightly for consumer credit (3% in 3Q vs 7%
in 2Q),” the report said.

Looking ahead to the fourth quarter of 2012, euro area banks expect
a similar degree of net tightening in credit standards for loans to
enterprises (13% in the fourth quarter of 2012) and households (9% in
net terms for housing loans and 2% for consumer credit in the fourth
quarter of 2012).

In the ECB’s ad-hoc survey on banks’ access to retail and wholesale
funding in the third quarter of 2012, “banks reported an improvement in
their access to retail and wholesale funding across all funding
categories,” the ECB said. “For the fourth quarter of 2012, banks expect
funding conditions to keep improving.”

Banks also indicated a “a considerable moderation in the impact of
sovereign debt tensions on banks’ funding conditions,” the survey
showed.

“Compared with the previous quarter, the impact of the sovereign
debt crisis on banks’ credit standards receded somewhat in the third
quarter of 2012. This development is broadly in line with the decline in
the impact of the cost of funds and balance sheet constraints on banks’
credit standards for loans to enterprises and households,” the ECB said.

– Frankfurt bureau: +49 69 720 142, email: jtreeck@mni-news.com

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