Euro zone banks expect strong demand for loans on foot of QE

Euro zone banks expect strong demand for loans from companies and home buyers in the coming months as the European Central Bank’s money printing improves funding conditions, an ECB survey showed on Tuesday.

The findings are the firmest sign yet that slow lending in the euro zone, which had dried up after the financial crisis, is picking up.

The survey results dovetail with an overall improvement in economic readings that are suggesting, among other things, that falling prices in the currency bloc are beginning to bottom out.

The ECB's quarterly Bank Lending Survey, which polls more than 140 top banks, showed that lending standards were gradually being loosened although the process was expected to remain slow with the exception of brighter spots such as Italy. "There have been substantial improvements in the level of credit standards compared with banks' indications one year ago," the ECB said in its report.

The results show that on balance, 9 per cent of banks had eased lending terms over the last quarter and 1 percent expected them to be loosened in coming three months. On balance, 39 per cent of banks expected to see stronger demand for loans from companies in the coming three months while 29 per cent expected a rise for house purchases.

Of the big euro zone countries, the ECB figures showed Italy saw the biggest improvement with a net 25 per cent of its banks easing lending standards over the last three months, while a net 13 and 7 per cent did so in the Netherlands and France.

"It's an improvement but from a very low base," said Jack Allen of consultancy Capital Economics. "Banks' willingness to lend has been loosening but that's after about six years of tightening standards. The euro zone is so much further behind than the US".

A separate part of the survey also pointed to the ECB’s €1 trillion stimulus programme, which began last month but was announced at the start of the year, starting to bear fruit. Nearly half of all banks reported a positive impact on their market financing conditions as a result of Quantitative Easing or money printing to buy chiefly government bonds.

Many said, however, that it was likely to have a negative impact on their profits with margins on loans likely to suffer.