Fears of an emerging credit crunch in the eurozone have increased as data showed a sharp slowdown in bank lending to the private sector, despite recent unprecedented injections of liquidity.

Signs of a modest credit crunch in the eurozone are amplifying

The European Central Bank calculated in regular monthly data that growth in loans to the private sector slowed substantially to just one per cent in December from 1.7 per cent in November.

Last month, in a series of special liquidity measures precisely to avert a credit crunch in the 17 countries that share the euro, the ECB launched its longest-ever liquidity operations, lending eurozone banks as much as they wanted for a period of three years at super-cheap rates.

And banks in the region queued up in their hundreds to borrow nearly half a trillion euros in the first-ever such operation.

Nevertheless, there have been concerns that banks are simply hoarding the cash, rather than lending it to businesses and households as the ECB hoped they would, and banks are parking record amounts of cash in the central bank’s overnight storage facility.

In normal times, banks shy away from depositing cash at the ECB, preferring to lend any overnight surplus to other banks, where they win a higher return.

But the eurozone debt crisis has spawned a lack of trust between banks and institutions are opting to store the money at the ultra-safe ECB rather than lending it to their peers. Analysts therefore viewed the latest loan data with some degree of concern.

Julian Callow at Barclays Capital described the slowdown in bank lending as “alarming”.

“We would expect the ECB to be concerned by the data, which . . . take the shine off the somewhat more encouraging news published earlier this week for business confidence,” he said.

“Signs of a modest credit crunch in the eurozone are amplifying,” said Christian Schulz, senior economist at Berenberg Bank. Howard Archer at IHS Global Insights agreed. The data “will reinforce concern that credit conditions are now increasingly tightening and posing a mounting risk to already struggling eurozone economic activity,” he said.

Nevertheless, it would take some time yet for the liquidity measures to feed through into the ECB data, the analyst noted.

“The moderation in loans to the private sector also likely reflects corporates becoming more cautious in their behaviour and in their investment plans in the current weakened and uncertain economic environment, and cutting back their demand for credit,” he said.