February 02, 2012

Euro-Zone Banks To Tighten Credit Conditions Further In 1Q

FRANKFURT -- Euro-zone banks expect to tighten credit conditions further in the first quarter on top of a surge in tightening already in the fourth quarter of last year as a result of the deepening sovereign debt crisis, while they see their wholesale funding conditions easing somewhat due to the European Central Bank's non-standard measures, the ECB said Wednesday.


Banks said that sovereign debt market tensions led to "a significant deterioration" in their funding conditions through balance sheet and liquidity management constraints in the last quarter of 2011, the ECB said in its quarterly Bank Lending Survey.

Banks expect some improvement in wholesale funding in the first quarter, "potentially reflecting the anticipated effectiveness of non-standard measures taken by the ECB," the ECB said.

The funding outlook for euro-zone banks comes after the ECB's injection of a hefty amount of nearly half a trillion of euros into the banking system in December in the form of an unprecedented three-year loan facility.

ECB President Mario Draghi said that the longest-ever ECB loan helped avert a "major, major" credit crunch. The ECB will offer the unlimited facility again in February.

Euro-zone banks reported that risks stemming from the sovereign debt crisis, market scrutiny of bank solvency risks, as well as the outlook for a worsening economic performance contributed to their tightening of the credit standards, the ECB said in the report.

foxbusiness.com

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