A survey on lending from the Central Bank shows that loan demand from both consumers and businesses continued to decline in the last three months of last year.
The Central Bank's bank lending survey reveals that for the third quarter in a row, credit standards on loans to enterprises were unchanged. The bank added, however, that heightened levels of risk perception and in particular diminished prospects for economic activity were reported.
The bank said that demand for loans from businesses fell due to a reduction in the financing needs of enterprises, rather than a change in the firms' external funding patterns. Lower levels of mergers and acquisitions was also noted.
On household lending, the Central Bank said that credit standards tightened on loans for mortgages due to weaker prospects for the housing market and ''less favourable expectations regarding economic activity''. Credit standards were unchanged in respect of consumer lending.
The bank said that during the first quarter of 2012, the recent pattern of unchanged credit standards and decreasing loan demand is set to continue.
Euro zone banks more reluctant to lend
Euro zone banks are tightening lending conditions for both businesses and households even as demand falls as the sovereign debt crisis drags on, the European Central Bank found today.
In its latest quarterly Bank Lending Survey, the ECB said that a quarter of banks expect to tighten the criteria that businesses must meet to take out loans in the first quarter of the year.
Almost as many banks said they would also tighten conditions for loans to households for house purchases. At the same time, demand for such loans both from households and firms has declined, the survey found.
The poll was conducted between December 19 and January 9 and so will not fully take into account the unprecedented injection of nearly €0.5 trillion of liquidity into the banking system by the ECB at the end of last year.
The data will, however, heighten concerns about a possible credit crunch in the 17 countries that share the euro. Banks already tightened lending conditions substantially in the final quarter of 2011, the ECB survey showed.
A net 35% of banks did so in the period from October to December, compared with 16% in the preceding three months. In the case of mortgage loans, as many as 29% of banks said they had tightened conditions in the fourth quarter of 2011, up from 18% in the preceding quarter and "higher than expected," the ECB said.
"Similarly to corporate loans, increased cost of market funding and balance sheet constraints were put forward as key driving factors behind these developments," it said.
Demand for loans by both companies and consumers is on the decrease. Banks reported a "strong further contraction" of 27% in demand for mortgage loans in the last quarter of the year, compared with 24% in the third quarter. "This was mainly on account of a clear deterioration of housing market prospects and weakening consumer confidence," the ECB said.
In the case of businesses, the decline was not quite as steep, with demand falling 5% in the fourth quarter after 8% in the third. "This decline was driven by a moderation in the pace of economic activity," the ECB explained.
Last week, fears of an emerging credit crunch in the euro zone increased as data showed a sharp slowdown in bank lending to the private sector. The ECB calculated in regular monthly data that growth in loans to the private sector slowed substantially to just 1% in December from 1.7% in November.
Last month, in a series of special measures, the ECB launched its longest-ever liquidity operations, lending euro zone banks as much as they wanted for a period of three years at super-cheap rates. Banks in the region queued up in their hundreds to borrow €489 billion in the first-ever such operation.
Nevertheless, there have been concerns that banks are simply hoarding the cash, rather than lending it to businesses and households as the ECB hoped they would, and lenders are parking record amounts of cash in the central bank's overnight storage facility.
