Banks loosened loan rules in second quarter: ECB

Eurozone banks offered businesses and households easier access to credit and more lenient repayment conditions in the second quarter, the European Central Bank said Tuesday, confounding expectations the market would tighten.

"The net easing of credit standards... followed a net easing in the previous quarter, despite expectations in the previous survey round that they would tighten slightly," the ECB said in a press release.

Banks loosened standards they use to judge creditworthiness both on loans to businesses and mortgage lending to households, the Frankfurt institution found in a June survey of 142 banks in the single currency area.

ECB figures showed lenders eased requirements for businesses by 3.0 percent, accelerating the 2.0 percent loosening seen between January and March.

Banks said that pressure from competitors for borrowers' business was the main factor behind the changes.

Meanwhile, creditworthiness standards were 4.0 percent looser for mortgages, a slight slowdown from the previous quarter's 5.0 percent.

The central bank also found that banks had offered more generous terms and conditions in all categories of loan contracts in the second quarter, continuing a trend seen in the first three months.

On the demand side, "merger and acquisition activity and fixed investment made an important and increasingly positive contribution to demand for loans to enterprises," the ECB pointed out.

Historic low interest rates also encouraged both companies and households to borrow money, while mortgage borrowing was boosted by a rising housing market.

Low rates are one of the ECB's massive interventions in the economy, alongside buying tens of billions of euros of government and corporate bonds every month and a programme of cheap loans to banks.

Central bank governors designed their policies to pump cash through the financial system and into the real economy by encouraging banks to lend, aiming to power growth and drive inflation towards their target of just below 2.0 percent.

While many observers anticipate the ECB will announce later this year that it will wind down its controversial bond-buying programme, president Mario Draghi is expected to hold course for now at a policymakers' meeting Thursday.

source: AFP