Business and household lending conditions in the euro zone improved steadily in the second quarter of 2015, as did credit requests, according to research published on Tuesday by the European Central Bank (ECB). “Banks are relaxing terms and conditions for new loans in all credit categories, mostly because of a greater reduction in margins on those loans,” reveals the ECB. The main factor allowing banks to be more flexible when it comes to loan conditions is “competition.” The improvement in credit conditions is being felt both by businesses borrowing money and by households needing credit to buy their homes.
The clear increase in net demand for loans, defined as the difference between the number of banks registering an increase and those registering a decrease, is also noticeable in the 2 categories, mostly due to low interest rates, the June ECB report found after studying 142 banks. Credit trends in the euro zone are scrutinised by the ECB as the dearth of loans in the region is being held responsible for the slow growth rate in the euro zone.
To make issuing loans to the private sector easier and thus boost the economy in the euro zone, the ECB increased initiatives in recent months, bringing key rates down to their lowest level, providing abundant and cheap liquidity for banks, and buying back many debt certificates since March.
The ECB has been granting TLTRO (targeted longer-term refinancing operations) to banks since September, on the condition that they are more supportive of the private sector.