August sa M3: +2.8% y/y
M3 sa 3-mo avg: +2.3% y/y
SA private loans: +2.6% y/y

MNI survey median:
August sa M3: +2.0% y/y
M3 sa 3-mo avg: +2.0% y/y
SA private loans: +2.4% y/y

MNI survey range:
August sa M3: +1.4% to +2.3% y/y
M3 sa 3-mo avg: +1.8% to +2.1% y/y

July sa M3: +2.1% y/y
M3 sa 3-mo avg: +2.1% y/y
SA private loans: +2.4% y/y
—

FRANKFURT (MNI) – Private sector loan growth in the Eurozone
unexpectedly accelerated to +2.6% in the year to August, while the broad
money supply (M3) jumped 2.8%, the European Central Bank said Tuesday,
overshadowing July’s 2.3% rise, but down from the central bank’s
reference of +4.5%.

Adjusting for loans sales and securitisation, loans to the private
sector hit a growth rate of 2.8% from July’s +2.6%. Despite the pick up
in loans to the private sector, overall credit growth extended to the
private sector slowed to +1.8% from the previous month’s +2.0%.

Loans to non-financial corporations increased by E13 billion on the
month following July’s E4 billion dip, leaving the annual change at
+1.6%.

The growth of loans to households was also unchanged, holding firm
at 3.0% (+2.7% after adjusting for loan sales and securitisation), with
lending for house purchases – the most important component of household
loans – stable at +3.9% y/y.

With the global economic slowdown weighing on future investment and
spending in the near term, credit demand is likely to remain subdued.
Credit supply could also stay weak, as the ongoing debt crisis pushes
banks to park their funds at the ECB rather than lend to other
institutions.

At his last press conference, ECB President Jean-Claude Trichet
once again called on banks to “turn to the market to strengthen further
their capital bases or to take full advantage of government support
measures for recapitalisation.”

In its monthly bulletin for September, the central bank warned that
higher financing costs and tighter credit standards in those Eurozone
countries that were strong growth drivers during the pre-crisis years
“are likely to weaken the relationship between credit and GDP dynamics
in these countries and, therefore, also at the euro area level.”

“Furthermore, the impact that the sovereign debt crisis has had on
banks’ funding conditions is likely to exacerbate cross-country
heterogeneity in borrowing conditions,” the ECB added. “This is likely
to dampen future euro area credit growth and economic activity.”

Among the main components of M3, narrow money (M1) supply was up
1.7%, while short-term deposits other than overnight deposits, the other
main component of M3, slowed to a rate of +3.3% from +3.7% previously.
Marketable instruments jumped to a growth rate of +5.4% y/y from July’s
+1.2%.

Noting the modest growth rates in both loans to households and M1,
the ECB reiterated its warning that economic growth in the Eurozone
could be moderate in the coming quarters.

“This outlook, which is based on monetary indicators with reliable
leading indicator properties for economic developments, is consistent
with that derived on the basis of business cycle indicators for the euro
area,” the central bank said in its bulletin.

–Frankfurt newsroom +49 69 720 142; e-mail:frankfurt@marketnews.com

[TOPICS: M$$EC$,M$X$$$,M$XDS$,MT$$$$,MTABLE]