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EU banks loosen purses strings for SME

Wednesday, July 30 12:16:04

Euro zone banks have loosened their lending terms for businesses for the first time since the start of the financial crisis, the European Central Bank said today, reducing one of the chief obstacles to an economic rebound.

Since the start of a banking collapse, which struck Germany in 2007 with the near failure of small-business lender IKB, banks in Europe have remained reluctant to lend even as the clouds of crisis gradually lift.

Now the survey of banks by the ECB has shown a possible reversal in this trend, with 3 percent of banks on balance easing their lending terms for companies in the second quarter while they predict a pick-up in such loan requests.

"Credit standards for all loan categories eased," ECB officials wrote in the closely-watched Bank Lending Survey, viewed as a gauge of the euro zone economy.

"For the first time since the second quarter of 2007, euro zone banks reported a net easing of credit standards on loans to enterprises."

Economists gave the improvement a cautious welcome. "It's an encouraging start," said James Knightley, an economist with ING.

"The fact that we are finally beginning to see European banks easing credit standards and recognising that there is greater demand gives us more optimism."

But the fragile nature of the improvement was illustrated by the difference in loan demand across the euro zone.

The disparity between export powerhouse Germany, which is now seeing a boom in house prices, and weaker nations such as Ireland, where borrowing is more expensive, remains one of the biggest challenges facing the 18-country euro bloc.

The ECB said that while banks saw an increase in corporate loan demand in Germany and Spain, they reported falls in the Netherlands, where economic growth has slipped, and in France.

For more visit: www.businessworld.ie