ECB bond market group: AQR could hamper SME lending

FRANKFURT Mon Oct 21, 2013 6:41am EDT

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FRANKFURT Oct 21 (Reuters) - The European Central Bank's upcoming asset quality review (AQR) of banks it will supervise from next year could result in a temporary reduction in lending to small firms, experts from an ECB working group said.

It could also sharpen the differences in small and medium-sized enterprises' (SMEs) borrowing costs, the ECB's Bond Market Contact Group minutes said.

The central bank has been worried that its interest rate cuts have not fed equally through to the real economy in all euro zone countries. Firms and consumers especially in debt-ridden southern Europe have to pay much higher interest rates for loans than their peers in countries like Germany.

"The upcoming Balance Sheet Assessment for European banks might temporarily reinforce this trend, although members believed that its effects would crucially depend on the ex-ante definition of a credible backstop and on the parameters of the assessment," the minutes of the Oct. 8 meeting, published on the ECB's website on Monday, showed.

The minutes also said that some members of the group, which consists of experts from the ECB and commercial banks, believed European bond yields could decouple from the U.S. ones when the U.S. central bank starts reducing its bond buys, others remained sceptical of this.

(Reporting by Sakari Suoninen)

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