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Eurozone bank sector on mend, ECB survey shows

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A rise in the number of banks giving up primary dealer roles in European government bond markets threatens to further reduce liquidity and eventually make it more expensive for some countries to borrow money.

[FRANKFURT] Europe'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 January 2016 bank lending survey (BLS), euro-area banks reported a continued net easing of credit standards on loans to enterprises in the fourth quarter of 2015," the ECB report said.

It conceded that the easing was "slightly less pronounced than banks' expectations in the previous survey round." But "competitive pressures were the main factor behind this easing," it added.

Banks reported a net easing of credit standards on loans to households for house purchase, again due to competitive pressures, it said.

Demand for loans is also increasing, the ECB found.

"Net demand across all loan categories continued to rise, especially for loans to enterprises," the survey showed.

"The low general level of interest rates contributed most to the increase in loan demand. For loans to enterprises, financing needs for working capital and fixed investment were further contributors to stronger demand. For housing loans, consumer confidence and housing market prospects additionally underpinned loan demand."

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 embarked on a controversial programme of sovereign bond purchases, known as quantitative easing or QE.