Eurozone bank sector on mend, ECB survey shows

euro bankEurope’s battered financial sector is showing further signs of mending and banks are increasingly competing for custom by easing credit standards, a key European Central Bank survey showed on Tuesday.

The ECB said its quarterly bank lending survey (BLS) showed banks are easing credit standards for loans to enterprises, 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.

“In response to the April 2016 bank lending survey (BLS), euro area banks reported a further net easing of credit standards on loans to enterprises in the first quarter of 2016,” the ECB report said.

“Competitive pressures remained the main factor behind this easing.”

By contrast, credit standards on loans to households for house purchases tightened, the ECB 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, especially for housing loans,” the survey showed.

“The low general level of interest rates and favourable housing market prospects contributed most to the increase in housing loan demand. For loans to enterprises, the rise in demand can be attributed to financing needs for working capital, the low level of interest rates, M&A (mergers and acquisitions) activity and fixed investment.”

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 mid-sized enterprises (SMEs) which are the region’s economic backbone.

In an attempt to address this, the ECB stepped up its controversial programme 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.

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