Eurozone debt crisis weighed on bank lending in Q2 – ECB

The eurozone debt crisis weighed on bank lending in the second quarter of the year, the European Central Bank said yesterday, even though mortgage lending showed a strong increase in June.

In its quarterly lending survey of 120 eurozone banks, the ECB said a net 11 per cent reported having tightened credit standards for businesses, up sharply from a net three per cent in the first quarter of the year.

The bank’s own forecast for the second quarter was for a slight improvement to two per cent. Loans to households were slightly less affected, with a net 10 per cent of banks saying they had tightened conditions, the same level as in the first quarter of the year.

There however, the forecast had also been for a decline to two per cent.

A net result means that in the first case, 11 per cent more banks said they had tightened standards than those that left conditions unchanged or loosened them.

Commercial banks pointed to a deterioration of their balance sheets and access to wholesale funding as factors behind the tighter lending standards, while they felt credit risks were better and companies’ economic conditions had improved, the ECB said.

“For the second quarter of 2010, possibly reflecting the renewed financial market tensions following concerns about sovereign risk, banks generally reported a deterioration in their access to wholesale funding across all segments,” it explained.

In the coming three months, a net 10-20 per cent of the banks expected access to wholesale funding on money or bond markets to worsen, the ECB added.

Demand for credit from both businesses and households was said to have recovered further from the previous survey, meanwhile.

On Tuesday, that was seen particularly in mortgage lending when the ECB released June data on eurozone loans to the private sector that showed a rise of 3.4 per cent in home loans, the biggest increase since September 2008.