Banks made it harder for firms to borrow in the third quarter and expect to toughen loan requirements further even though their own funding constraints have eased, the European Central Bank said yesterday.
The eurozone economy is set to stagnate in 2013- EY
Worried about the weak economy and tougher regulations that are squeezing their margins, banks are retrenching and slashing costs. UBS announced plans on Tuesday to fire 10,000 staff and Deutsche Bank increased its job loss target by nearly 100 to 1,993 staff.
In its latest quarterly Bank Lending Survey, the ECB said that while banks see lower demand and tighter standards, they also reported an improvement in access to retail and wholesale funding across all funding categories in the third quarter.
“Banks reported an improvement in their access to retail and wholesale funding across all funding categories,” the ECB said.
“For the fourth quarter of 2012, banks expect funding conditions to keep improving.”
However, analysts said that while this showed the Central Bank’s emergency measures are helping banks, weak demand means the economic situation remains precarious.
Separate ECB data showed that firms and consumers in countries tainted by the sovereign debt crisis are still paying much higher interest rates for bank loans than those in stronger northern European economies.
Banks cited general economic expectations as well as their industry- or firm-specific outlook as a reason for tightening up on loans.
Although banks in the bloc’s more vulnerable states have suffered from their exposure to the debt crisis and Spain had to ask for a banking sector bailout from its European partners, the effect of public funding woes eased from the April-June period.
“Compared with the previous quarter, the impact of the sovereign debt crisis on banks’ credit standards receded somewhat in the third quarter of 2012,” the ECB said.
The ECB said that a net 15 percent of the eurozone banks that took part in the survey tightened their criteria for firms to borrow in the third quarter, up from 10 percent in the second quarter. Almost the same number expect to harden their standards further in the last three months of the year.
The survey showed banks expect demand from firms, consumers and house-buyers to weaken further in the fourth quarter.
Demand fell especially strongly in Italy, with more than half the banks saying corporate loan demand fell. In Germany, which has weathered the sovereign debt crisis much better than its eurozone peers, less than 10 per cent of banks said the demand fell in the third quarter.
Mortgage loans, often seen as a forerunner of broader credit trends, fell further, albeit at a slightly slower pace.
Demand fell especially in southern Europe, country-by-country data showed, whereas almost one-third of German banks reported higher mortgage loan demand in July-September, and roughly the same number of banks there expect demand to rise further in the last three months of the year.
“Today’s Bank Lending Survey corroborates our previous assessment that the boost to confidence seen in asset prices over the past few weeks and months has yet to feed through into the real economy,” Ernst & Young Eurozone Forecast senior economic adviser Tom Rogers said.
“The further tightening in credit availability for SMEs and the rate at which overall demand for finance for investment fell point towards continued apprehension on the part of the banks and firms over economic prospects. The fact that banks expect both credit standards and loan demand to deteriorate further in the final three months of the year is consistent with our view that following a mild recession this year, the eurozone economy is set to stagnate moving in 2013.”