Loans to the eurozone’s private sector contracted for the 12th month in a row in April, raising pressure on the European Central Bank to take fresh policy action to help lift the bloc out of recession.

Loans fell 0.9 per cent from the same month a year ago, ECB data showed yesterday, a slightly bigger fall than the mid-range forecast for a drop of 0.7 per cent in a Reuters poll of economists.

The ECB, which meets next week, has flooded banks with money but many still remain wary of lending to businesses – particularly in the recessionary periphery of the eurozone – against a weak economic backdrop and uncertain outlook. Banks granted non-financial firms €18 billion less in loans in April than in the previous month, data adjusted for sales and securitisations showed, after a fall of €2 billion in March.

“The marked fall in lending to eurozone businesses in April ramps up pressure on the ECB to come up with concrete measures aimed at improving credit availability to companies, especially small and medium-sized ones,” said Howard Archer, economist at Global Insight.

ECB data also showed that loan growth rates vary greatly between eurozone countries, with those hardest-hit by the debt crisis seeing big reductions.

In Spain, lending to firms, excluding banks, fell 8.8 per cent from the same month a year earlier. Ireland saw a 5.6 per cent decrease, while lending fell 3.3 per cent in Greece and 3.5 per cent in Portugal.

German lending growth to firms was just above zero, as it recorded a 0.3 per cent annual growth rate. Growth in the Netherlands, Finland and France was faster than that.

The ECB holds its June policy meeting next Thursday. Last month, it cut its main interest rate to a record low of 0.5 per cent and policymakers have left open the possibility of a further cut.

In addition to potentially cutting the main rate, the ECB’s Governing Council is debating whether to cut the deposit rate – the interest paid on money that commercial banks park at the central bank – below zero to encourage them to lend more. Critics say such a move could destabilise money markets.

To boost lending to small eurozone companies, the ECB is also looking at ways to revive an asset class that was widely criticised for its role in the financial crisis – asset-backed securities (ABS).

These allow banks to move at least some credit risk off their balance sheets by packaging individual loans into new instruments and selling them on to other investors.

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