Europe's battered financial sector is showing tentative signs of healing, even if it is still too early to sound the all-clear, a key ECB survey showed today.

Banks are about to ease up on credit conditions and increase the availability of loans for businesses, the survey suggested pointing to an important factor in the dynamics of the still sluggish euro zone economy.

But demand for business loans remains weak. Credit conditions in the euro area are still being tightened, but could begin to ease again in coming months, the European Central Bank found in its quarterly bank lending survey. 

The net percentage of banks expecting that tightened their loan criteria for businesses and households eased to 2% in the fourth quarter from 5% in the third quarter, the ECB said.

And for the first quarter of 2014, "euro area banks expect a further reduction in the net tightening on loans to non-financial corporations - to reach nil - and a more intense net easing for loans to households," the survey found. 

"The January 2014 Bank Lending Survey provides further indications of stabilisation in credit conditions for firms and households, in the context of persistently weak loan demand," the ECB wrote. 

The ECB also released data showing that lending to businesses in the debt-mired eurozone contracted sharply again in December. Private sector loans dropped by 2.3% in a year-on-year comparison, after already contracting by the same amount in November. 

Analysts said that the lending survey data suggest that the squeeze on lending to euro zone non-financial firms may have run its course, with some evidence that access to finance for small and medium-sized enterprises has started to ease.