ECB sees euro zone bank lending growing in first quarter

[FRANKFURT] Euro zone banks expect loan demand to rise and qualifying to borrow to be easier in the first quarter of 2017 as economic activity continues to expand in the 19-member currency bloc, the European Central Bank said in a quarterly survey on Tuesday.

Hoping to boost economic activity, the ECB has flooded the financial system with over a trillion euros in recent years as part of its unprecedented stimulus cocktail, buying government and corporate bonds, and giving banks access to free loans to revive lending.

Although its measures have worked slower than expected, lending to euro zone companies grew its fastest pace since the tail end of the global financial crisis in November and household lending was also at a multi-year high, indicating that credit was making its way into the real economy.

The fresh survey of 139 banks indicated that demand for loans gained momentum in the last three months of 2016 in all credit categories, including mortgages, corporate loans and consumer credit.

Banks expect credit standards - the tests for borrowing - to ease in the first quarter after a modest tightening of corporate lending standards in the last three months of 2016, the survey showed.

Lenders on average tightened their credit standards for loans to companies in the fourth quarter, mainly due to significant tightening in the Netherlands, even as credit standards were broadly unchanged elsewhere. This was the first net tightening since the fourth quarter of 2013 and was broadly in line with expectations.

The ECB extended its asset buys last month until the end of 2017 arguing that substantial stimulus was still needed to revive growth and ultimately consumer price growth.

Inflation rose to 1.1 per cent in December, its best rate since late 2013, but still only around half of the ECB's two per cent target.

The central bank will next meet on Jan 19 and will likely keep its policy stance unchanged.

(S$1 = 0.65933 euros)

REUTERS