Christ Yoder
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FRANKFURT (Reuters) – Eurozone banks expect demand for emergency credit to rise again in the second quarter and they are expected to meet it with easier credit standards as government guarantees and debt securities rise. Liquidity measures come into force, the European Central Bank said on Tuesday.
With much of the continent on lockdown to stem the spread of the coronavirus pandemic, the eurozone economy could shrink by a tenth this year and businesses are scrambling to find funding to stay afloat until reopening economy.
Credit standards, or internal bank loan approval criteria, for business loans tightened in the first quarter, but the deterioration was “slight” compared to the global financial crisis and the debt crisis which followed, in part because of government measures, the ECB added.
The central bank’s liquidity measures and government guarantees will come into full effect in the second quarter, so banks expect their lending standards to ease significantly in the three months leading up to June, the bank added. BCE, based on a survey of 144 lenders.
Among the largest countries in the euro zone, business credit criteria have tightened the most in Germany and Italy, while in France, they have remained broadly unchanged.
“Demand for business loans or lines of credit jumped in the first quarter of 2020, due to urgent business liquidity needs,” the ECB said. “In the second quarter, demand for business loans is expected to increase further, reaching the highest net balance since the survey began in 2003.”
Household borrowers face more difficulties as credit standards tightened in the first quarter and further deterioration is also likely in the second quarter, the ECB added in a survey conducted between March 19 and April 3. , the culmination of the coronavirus shutdown in Europe.
(Reporting by Balazs Koranyi; Editing by Francesco Canepa, Kirsten Donovan)
