ECB says credit harder to access

Businesses and households are finding it more difficult to access credit, with households in particular being particularly squeezed, according to figures from the ECB.

The latest Euro Area Bank Lending Survey shows that Irish banks tightened the credit standards they apply to both business and individual customers in the first quarter of 2010.

While the tightening of credit standards to business customers continues a quarter-on-quarter trend, confirming claims by the small business sector that businesses are finding it difficult to access credit, the tightening of credit standards for households will be a cause of concern for consumers.

The previous Euro Area Bank Lending Survey had suggested that there was some stabilisation in the credit situation for householders.

The January 2010 survey says credit standards for lending to households remained unchanged in the third quarter of 2009 - the first time since the fourth quarter of 2007 that credit standards for household loans had not tightened quarter-on-quarter. The latest survey shows that this trend has been reversed, with credit standards for households once more tightening in the first three months of 2010.

According to the banks, increased risk perception was the main factor behind the tightening of credit standards to households, which applies to both home purchases and consumer credit. In terms of loans for the purchase of houses, borrowers experienced tighter credit standards through more restrictive loan to value ratios and an increase in collateral requirements. For consumer credit, tighter credit standards were evident through increased margins on average loans.

The survey also found that demand for credit from businesses and households also declined in the quarter.

Banks reported that the demand for loans from enterprises decreased across all categories during the first quarter of 2010 and attributed this to a small number of factors including lower levels of fixed investment and reduced Merger and Acquisition activity.

Similarly, demand for loans from households decreased during the first three months of the year, with banks predicting that this level of demand will be maintained in the second quarter of 2010.

Five Irish banks participated in the survey, which is conducted on a quarterly basis.