European banks expect to tighten credit standards in the second quarter at slower pace than in the first three months of the year, the European Central Bank said today.
"Expectations point to the net tightening of credit standards being somewhat weaker than was actually observed in the first quarter of 2008," the Frankfurt-based ECB said in its quarterly bank lending survey published today.
Demand for corporate loans and loans to households for house purchases is expected to be "less negative" in the second quarter while consumer credit demand is expected to "remain negative".
The euro-region economy has so far weathered the global jump in credit costs better than the US or the UK ECB President Jean-Claude Trichet said yesterday Europe's economic fundamentals are "sound".
Still, the International Monetary Fund estimates growth in the 15-nation euro region will slow to 1.4 per cent this year from 2.6 per cent in 2007.
The world's biggest financial companies have posted at least $321 billion in writedowns and credit losses since the start of last year after the US market for subprime mortgages, aimed at people with poor credit histories, collapsed.
That has made banks reluctant to lend, pushing up the cost of credit and roiling financial markets.
Mr Trichet said yesterday that the bank lending survey contradicts some of the data from the ECB's monetary analysis, which suggest lending remains "very dynamic". He described the situation as a "paradox".
The annual rate of loan growth to the private sector stood at 10.8 per cent in March after 11 per cent growth in the previous month.
The impact of the financial turmoil on credit standards in the first quarter was "especially strong'' for loans financing mergers and acquisitions and corporate restructuring, today's report said.
"The effect was more limited" for loans financing fixed investment or inventories and working capital.
The cost of borrowing in euros for three months held within 1"basis point of the highest level since December 18th, the European Banking Federation said yesterday.
The euro interbank offered rate, or Euribor, was unchanged at 4.86 per cent, the EBF said today. The one-week rate fell more than 1 basis point to 4.24 per cent.
Bloomberg