Eu­ro­zone lend­ing to business and house­holds slows

Financial Mirror (Cyprus) - - FRONT PAGE -

Lend­ing to eu­ro­zone house­holds and com­pa­nies con­tracted at a slower pace in Septem­ber, and money sup­ply grew faster than ex­pected, sug­gest­ing that a cy­cle of tight­en­ing credit con­di­tions in the bloc is grad­u­ally com­ing to an end, the EU news and pol­icy site EurAc­ re­ported.

Data re­leased by the Euro­pean Cen­tral Bank on Mon­day showed loans to the pri­vate sec­tor fell by 1.2% in Septem­ber from the same month a year ear­lier, after a con­trac­tion of 1.5% in Au­gust. Eu­ro­zone M3 money sup­ply grew at an an­nual pace of 2.5%, up from 2.1% in Au­gust.

The ECB pub­lished re­sults on Sun­day of its stress tests of the eu­ro­zone bank­ing sec­tor, an ex­er­cise its vice pres­i­dent said would help en­sure the avail­abil­ity of credit, though he noted Europe still has a lack of de­mand.

“To­day’s fig­ures are a mixed bag,” ING economist Peter Vanden Houte said of the money sup­ply data.

“While the data are some­what bet­ter than ex­pected, point­ing to a bot­tom­ing out of the credit cy­cle, they still don’t sig­nal a strong credit re­cov­ery over the com­ing quarters.”

ECB data showed that lend­ing to com­pa­nies in

the eu­ro­zone pe­riph­ery con­tin­ued to fall in Septem­ber, while banks in core coun­tries kept lend­ing more, high­light­ing di­ver­gences in credit con­di­tions within the bloc, the EurAc­tiv re­port said. Pol­i­cy­mak­ers are des­per­ate to re­vive the eu­ro­zone econ­omy, which is barely grow­ing and dogged by low in­fla­tion of 0.3%, far be­low the ECB’s tar­get of just be­low 2%.

The ECB, seek­ing ways to brighten the eu­ro­zone’s eco­nomic pic­ture, is con­sid­er­ing buy­ing cor­po­rate bonds and may de­cide on the mat­ter as soon as De­cem­ber with a view to be­gin­ning pur­chases early next year, sev­eral sources fa­mil­iar with the sit­u­a­tion told Reuters last week.

How­ever, ECB Pres­i­dent Mario Draghi has stressed that the ECB alone can­not tackle the eu­ro­zone’s woes, and urged cri­sis-hit coun­tries to get their economies into shape with re­forms.

He has also made a thinly veiled ap­peal for Ger­many to em­bark on a round of deficit-funded in­vest­ment spend­ing, adding his voice to that of other re­gional pol­i­cy­mak­ers.

But with Ger­many wed­ded to strict bud­get dis­ci­pline and other coun­tries tak­ing time to im­ple­ment struc­tural re­forms, mar­kets are look­ing to the ECB to do more.

Eu­ro­zone banks, es­pe­cially in cri­sis-stricken coun­tries, have tight­ened their purse strings in re­sponse to tougher cap­i­tal re­quire­ments and the health check of the sec­tor, while com­pa­nies have held off in­vest­ments, un­sure of the fu­ture.

To solve the prob­lem, the ECB has started of­fer­ing banks four-year loans at ul­tra-cheap rates and has be­gun buy­ing cov­ered bonds. It also plans to buy as­set-backed se­cu­ri­ties to ease the bur­den on banks’ bal­ance sheets and en­tice them to lend, but th­ese mea­sures will take time to gain trac­tion.

Sun­day’s ECB health check re­sults showed roughly one in five of the eu­ro­zone’s top lenders failed the ex­er­cise at the end of last year, though most have since re­paired their fi­nances by rais­ing fresh cap­i­tal or re­duc­ing debt.

“The ECB will now be fer­vently hop­ing that the re­sults of its Euro­pean bank stress tests that were re­leased on Sun­day lift con­fi­dence in the eu­ro­zone bank­ing sys­tem and that this en­cour­ages banks to lend more, in tan­dem with the ECB’s stim­u­lus mea­sures,” said IHS Global In­sight economist Howard Archer.

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