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Central Bank warned on Friday, posing a threat to what is likely to
be a weak recovery from the 16- nation bloc's first recession.
Growth in loans to the private sector dropped to 0.1 percent in
August from a previous record low of 0.7 percent in July, an ECB
spokesman said. Capital Economics European economist Ben May said
"there are still few signs that the ECB's provision of unlimited
liquidity to banks is boosting broad money and credit growth." The
central bank loaned a record 442.24 billion euros (650 billion
dollars) at 1.0 percent in 1- year funds to commercial banks in June
and is set to make another unlimited 1- year loan at the same rate
next week. Private sector lending, however, could begin to contract
in September despite the cash flood, May said. Eurozone banks have
been criticised by politicians and business leaders for failing to
pass on cheap central bank funds to the wider economy and the ECB has
also pressed the banks to do their part to support a recovery.
Commerzbank economist Michael Schubert noted that the decrease in
lending growth "may be partly due to the substitution of securities
issuance for bank loans" as big companies seek to raise funds
directly on the money markets. May nonetheless said that "given
eurozone firms' heavy reliance on bank lending, this is unlikely to
fully explain the story." With the recession's impact set to show up
increasingly in balance sheets, commercial banks will probably have to
apply still stricter lending criteria, Schubert noted. Battered banks
are also curbing lending because they must get their their own books
in order. Growth of the ECB's wider M3 money supply indicator, which
measures cash, deposits and various other financial items, meanwhile
fell to 2.5 percent in August from 3.0 percent in July, the bank
spokesman said. Lending and money supply data reflect consumer demand
and overall activity in an economy. A falling figure points to lower
demand, which normally means inflation will ease and allow the ECB to
cut interest rates.
