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Eurozone firms keep borrowing as growth fears mount

Eurozone Photograph:( Reuters )

AFP Germany Oct 22, 2019, 02.41 PM (IST)

Companies' demand for bank loans held up in the eurozone in the third quarter, the European Central Bank found in a survey published Tuesday, in a mildly positive sign amid fears of a slowdown.

"Net demand for loans to enterprises remained broadly unchanged in the third quarter," the ECB said in its quarterly survey of 144 banks across the single currency area.

But the steady interest in loans disappointed financial firms' hopes earlier this year that the third quarter would bring growth in demand.

"Demand slightly increased for loans to small- and medium-sized enterprises, but decreased for loans to large firms," the ECB added.

Many of the central bank's measures to stimulate the economy in recent years have aimed at increasing bank lending, a more significant factor for growth in Europe than other advanced economies like the US.

But the Frankfurt institution and organisations like the International Monetary Fund were forced to slash eurozone growth forecasts in recent weeks, as external factors such as trade wars and Brexit weigh on the bloc.

ECB economists now expect an expansion of 1.1 per cent this year and 1.2 per cent in 2020.

It was unclear Tuesday whether British MPs would vote through a last-minute divorce deal with the European Union.

And a truce in the US' damaging trade conflict with China remains elusive, while Washington last week slapped new tariffs on $7.5 billion of EU imports.

The ECB in September responded to slowing growth and mounting risks with a fresh and controversial big-bang package of measures.

It relaunched mass bond-buying and further lowered a key interest rate into negative territory.

Even before then, banks reported in the third-quarter survey that "the ECB's negative deposit facility rate continued to contribute to an increase in lending volumes and a decrease in lending rates" for companies and households.

Looking elsewhere in the results, lenders said they eased slightly the criteria they use to evaluate potential home mortgage and business borrowers in July-September.

But they tightened up the terms and conditions in their loan contracts for both companies and home buyers over the same period.