The European Central Bank (ECB) has recently hinted that the EU’s troubled financial sector is slowly beginning to show first signs of recovery although it is still very early to herald a victory. Financial institutions are going to relax credit conditions and make loans more available for enterprises, which is a significant move towards a full-fledged dynamics of the economy. Yet, despite this positive news, the overall demand for company loans remains poor.
Although the credit conditions are still somewhat tough for many businesses, expectations are favourable. The number of banks anticipating that they are in the near future likely to make their loan criteria stricter for firms and households eased by 2 percent from last year. For the first quarter of the new year, the eurozone financial institutions are expecting to witness further relaxation of credit criteria for non-financial corporations to reach nil as well as a more dynamic net relaxation for loans to households.
The ECB commented that the latest Bank Lending Survey of January 2014 shows also first indications of stabilization in credit conditions for both businesses and households with respect to a weak loan demand. The ECB has also lately published new data suggesting that lending to firms contracted significantly in December last year. For example, private sector loans dropped by about 2 percent in a year-to-year comparison after they previously contracting also by about 2 percent in November.
The eurozone forecast of E&Y paints similar picture saying that there is evidence of lending to small and medium-sized enterprises having already started to take-off, though it is unlikely to rebound due to risk-aversion on the side of lenders and borrowers. The E&Y analysis suggests that loan growth is expected to reach about 1.6 percent in 2014, which is still not enough to back up usual investment behaviour and job creation.
