Eurozone banks no restricting lending says ECB

The European Central Bank has played down fears that a credit crunch in the eurozone may be underway.

Only a net 9% of 131 eurozone banks have tightened their lending conditions in the last three months, according to the ECB's latest survey of lenders.

The data suggests that emergency loans provided by the ECB have helped stave off a sudden curtailment of lending.

But the ECB also warned that the weak economy meant that demand of businesses for loans would likely remain subdued.

The ECB has provided more than a trillion euros in three-year loans to eurozone banks since last December, in order to head off a major banking crisis that threatened to erupt last November.

But the central bank's president, Mario Draghi, made clear that it was now up to governments and banks to use the available time to strengthen the banks' finances.

"Now, the ball is entirely, squarely in the court of governments and banks," he said, speaking to the European Parliament.

He recommended that the banks cut their bonus and dividend payments, in order to retain more profits as a capital buffer to absorb potential future losses on their enormous loans and investments.

Where banks are unable to build up their capital buffers sufficiently from their own efforts, they may need to receive capital directly from their governments, resulting in their partial nationalisation.

Mr Draghi also called on national governments to persist in their programmes of spending cuts and tax rises, which were designed to get their borrowing back under control.

However, he acknowledged that up until now, the main achievement of government austerity was to push the eurozone back into recession, without doing much to reduce fears in financial markets that governments may be unable to repay their debts.

"Fiscal consolidation has been undertaken and is starting to reverberate its contraction effects, and we haven't seen the benefits," he said.

"But we are convinced we have to persevere. We are just in the middle of the river that we are crossing. The only answer is to persevere."

Source & Image : BBC