Euro zone banks see rising loan demand, easing credit standards, says ECB

Inflation above ECB target in July

Published: August 18, 2018 00:17:05

European Central Bank (ECB) headquarters building is seen in Frankfurt, Germany — Reuters

Euro zone banks expect demand for corporate and household loans to increase further in the third quarter with credit standards also easing, the European Central Bank said in a quarterly survey of the bloc's top banks, reports Reuters.

Buying 2.5 trillion euros worth of public and private bonds over the past three years, the ECB has pushed borrowing costs to record low levels, hoping to stimulate borrowing and spending, all with the ultimate aim of boosting inflation.

Although the scheme worked more slowly than expected, household and corporate lending are both near post-crisis highs, so the ECB agreed last month to wind down the bond purchases, satisfied that inflation is finally moving back towards its target of just under 2.0 per cent.

In the second quarter, banks saw increased demand for corporate, housing and consumer loans and said credit standards - internal guidelines or loan approval criteria - also eased for all three categories, the ECB said.

Its comments were based on a survey of 149 lenders.

"Banks' overall terms and conditions on new loans continued to ease across all loan categories in the second quarter of 2018, driven mainly by a narrowing of margins on average loans," the ECB said.

It added that competitive pressures and risk perceptions contributed to an easing of credit standards in the second quarter, while banks' risk tolerance, their cost of funding and balance sheet constraints had a broadly neutral impact.

Another report from Brussels adds: Annual inflation in the 19 countries sharing the euro increased to 2.1 per cent in July, European statistics office Eurostat said on Friday, confirming the rate was above the European Central Bank's (ECB) target.

The confirmation of increasing inflation is good news for the ECB, which aims to end a bond purchasing programme by the end of the year and has signaled a possible interest rate hike next year.

Headline consumer inflation accelerated to 2.1 per cent year-on-year in July from 2.0 per cent in June, pushed up by higher energy costs.

Excluding energy and unprocessed food, an indicator the ECB looks at to measure core inflation, prices rose by 1.3 per cent year on year.

On a country-by-country basis, annual inflation was highest in Estonia, Latvia and Belgium, while Greece and Ireland saw the smallest price increases.

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