— Survey Conducted Before And After E489 billion 3-year Loan Injection
— ECB’s Three-year Loans May Yet Have A Positive Impact

FRANKFURT (MNI) – Eurozone banks expect to continue tightening
conditions on loans this quarter, but they may do so less aggressively
than in 4Q, perhaps reflecting the tonic effect of the European Central
Bank’s three-year refinancing operation, according to results of the
ECB’s most recent Bank Lending Survey, published Wednesday.

The survey — conducted in part after the ECB flooded the system
with E489 billion of three year loans — shows banks expect a
deceleration in the net tightening of credit standards for both
non-financial corporations and households in 1Q 2012.

The net tightening of credit standards by euro area banks on loans
to non-financial corporations is expected to drop to 25% in the first
quarter of 2012 following a significant 35% net tightening in 4Q 2011.

Banks also expect net tightening on loans to households for home
purchases to ease to 24% from 29% in 4Q, while credit tightening on
consumer credit should ease to 11% from 13% in the final quarter of
2011.

The survey was conducted between and December 19 January 9, with
124 Eurozone banks participating, the ECB said.

The sharp net tightening rates in the final quarter of 2011 along
with the expected deceleration of tightening in 1Q lends some credence
to ECB President Mario Draghi’s view that Europe was in danger of a
“major, major credit crunch” and avoided it thanks to the ECB’s new
liquidity policy.

Answers to an ad hoc question in the survey suggest that at least
some of the constraining factors in the final quarter of 2011 have been
addressed by the central bank’s intervention.

The increase in net tightening of credit standards reported for the
fourth quarter of 2011 can be ascribed to “the adverse combination of a
weakening economic outlook and the euro area sovereign debt crisis,
which continued to undermine the banking sector’s financial position,”
the report said.

“Increased market scrutiny of bank solvency risks in the fourth
quarter of 2011 is likely to have exacerbated banks’ funding
difficulties,” it added.

Looking ahead, however, “banks across the euro area overall expect
some improvement in access to wholesale market funding in the next
quarter, potentially reflecting the anticipated effectiveness of
non-standard measures taken by the ECB,” the report said.

“The access to retail funding was also seen as a challenging issue
at the end of 2011, albeit less so, on average, than access to wholesale
funding. For the next quarter banks anticipate a mild improvement,” it
added.

Draghi on Friday said it was still too early to draw any firm
conclusions, but he sounded hopeful that the ECB’s long-term loans would
feed into the real economy.

“We don’t have any evidence of this yet. We have to wait. There is
a lag,” the ECB president said. But since “the identity of the banks
that borrow is different from the identity of the banks that deposit”
with the ECB, he said he believed the funds were circulating through the
economy.

At the same time, however, Draghi conceded that in some parts of
the Eurozone, credit “is seriously contracting.” The ECB will no doubt
closely monitor lending standards in the period ahead.

It plans to conduct another 3-year operation on February 28 with a
broader collateral framework, allowing easier access for banks. Before
drawing firm conclusions or taking additional policy steps, the ECB will
likely wait to observe the uptake and impact of the second tender.

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— Frankfurt bureau: +49 69 720 142, email: jtreeck@marketnews.com

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