Bloomberg News

ECB Says Banks Will Tighten Credit Standards on Fiscal Crisis

February 01, 2012

Feb. 1 (Bloomberg) -- The European Central Bank said financial institutions tightened credit standards in the fourth quarter and expect to make it more difficult to obtain loans in the first three months of the year.

“The net tightening of credit standards by euro-area banks surged in the fourth quarter,” the Frankfurt-based ECB said today, citing its quarterly Bank Lending Survey. “Looking ahead, euro-area banks expect a further net tightening of credit standards, albeit at a slower pace.”

Loans to euro-area households and companies contracted the most on record in December as the sovereign debt crisis damped demand for credit and banks tightened lending. The ECB lent euro-region banks a record 489 billion euros ($638 billion) that month to ward off a funding squeeze. It will offer another batch of 3-year loans at the end of February.

“Participating banks explained the surge in the net tightening of credit standards by the adverse combination of a weakening economic outlook and the euro area sovereign debt crisis, which continued to undermine the banking sector’s financial position,” the ECB said.

The ECB said a “large number” of banks reported “significant difficulties” in accessing wholesale funding. At the same time, banks expect “some improvement” in funding conditions, “potentially reflecting the anticipated effectiveness of non-standard measures taken by the ECB.”

Demand for loans from companies and households declined in the fourth quarter, according to the report. Banks expect a “sizeable drop” in demand for housing loans, the ECB said. Demand for consumer credit will decline as well, it added.

--With assistance from Kristian Siedenburg in Budapest. Editor: Simone Meier

To contact the reporters on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net; Jeff Black in Frankfurt at jblack25@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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