Eurozone home loans demand rises

Eurozone home loans demand rises
By Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2009
Published: July 29 2009 11:09 | Last updated: July 29 2009 17:16
http://www.ft.com/cms/s/0/5c9e7eaa-7c25-11de-a7bf-00144feabdc0.html


Eurozone demand for home loans has turned positive for the first time since early 2006, while businesses are seeing a “turning point” in the increasingly tough conditions imposed on bank loans, according to a European Central Bank report.

Consumers became markedly less pessimistic about housing market prospects in the second quarter of this year, and the pace at which credit standards were tightened on mortgages fell again, the ECB’s latest bank lending survey showed on Wednesday. Meanwhile, credit standards for companies were tightened at a much slower pace than in the previous three quarters, said the closely watched report.

Official concern about the health of eurozone credit markets has heightened in recent weeks, but the ECB survey added to the evidence that government and central bank emergency policies to counter the severe recession are beginning to feed through into the 16-country eurozone economy.

The latest trends in lending to companies “confirm a turning point in the tightening cycle”, the ECB said, although the stricter conditions applied by banks since the global economic crisis intensified late last year still represented a “significant degree of net tightening”.

Late last month, the ECB pumped €442bn ($620bn, £378bn) in one-year loans into the eurozone banking system and has stepped up its appeals to banks to lend to businesses and households at reasonable interest rates.

Economists warned that the banking sector could continue to slow an economic recovery. Gilles Moec, European economist at Deutsche Bank, expected demand for corporate credit to pick up later this year and argued that “how banks adjust their credit standards at that point will be crucial”.

Separately, Germany’s Ifo institute reported its July credit survey showed that 45.1 per cent of German businesses had described bank credit conditions as “restrictive” – up from 42.4 last month and less than 23 per cent in mid-2007.

The ECB bank lending survey also indicated eurozone banks were becoming more selective when lending. However, the net percentage of banks reporting a tightening of credit standards applied on loans to companies decreased from 43 per cent in the first quarter to 21 per cent in the second quarter. The reasons cited for the tightening reflected worries about the economic outlook, or company-specific factors – rather than the banks’ own capital position or access to market financing.

Banks reported a less dramatic decline in demand for corporate loans in the second quarter, and a further improvement was expected in the third quarter. Recent falls have been driven largely by a strong decline in the need for funds for investment projects.

In the household sector, the net percentage of banks reporting a tightening of credit standards for home loans fell to 22 per cent from 28 per cent in the first three months of the year and from 41 per cent in the fourth quarter of 2008.

Nick Kounis, European economist at Fortis Bank, said: “To the extent that banks have become more careful, it seems to be largely due to the recession.”