Eurozone banks are doing better, lending improves

One piece of good news about the eurozone has been overshadowed by the ongoing, Syriza-orchestrated drama on Greece: lending continues to improve, and with it, the prospects for the single currency area.

Data from the European Central Bank (ECB) show that euro area banks reported a net easing of credit standards on loans to companies in the second quarter of the year, which was stronger than banks’ expectations in the previous survey.

Banks in the eurozone also reported a net easing of credit standards on loans to households for house purchases, despite having expected a tightening of standards in the previous survey.

The survey, carried out among 142 big banks, is positive for the eurozone economy, which has seen deep deleveraging since the start of the financial crisis. However, there are still risks that things may turn bad again.

“Overall, the survey shows continued improvement in demand and supply outlook, boding well for loan volumes going forward, especially in the eurozone periphery,” Marco Troiano, an analyst with European rating agency Scope Ratings, said.

“However, we stress that the survey responses were gathered between 9 and 24 June, i.e. before the escalation of the Greek crisis (the referendum was called on June 25), which may have subsequently dented confidence in the periphery.”

Eurozone credit demand

Eurozone banks are doing better, loan demand rises. Source: Scope Ratings

Looking deeper into the survey’s results, Troiano noted that credit standards eased significantly in Italy and more marginally in France, remained unchanged in Spain but tightened marginally in Germany.

The easing of credit supply for companies and households was due to strong competition thanks to “abundant liquidity” and with banks being more comfortable about their capital positions following rounds of liquidity provision by the ECB.

He also noted that banks reported better terms and conditions for consumers, and particularly lower margins on loans, across the major countries.

“Particularly significant are the results from Spain, where a net 80% of respondents reported lower margins on the average new business loan. Margins were also reportedly lower on mortgages, especially in the eurozone periphery,” Troiano said.

Banks in the eurozone see easier terms for loans for businesses and consumers for the third quarter as well, but expect to tighten conditions for mortgage lending.