FRANKFURT Loans to euro zone companies dropped significantly in September as the euro debt crisis and a darkening economic outlook dampened their appetite to borrow, while ECB efforts to encourage lending showed little impact.
Loans to the private sector fell 0.8 percent from the same month a year ago, data released by the European Central Bank showed on Thursday, coming in below the expectations of economists polled by Reuters for a drop of 0.6 percent.
Lending to firms was 20 billion euros ($26 billion) below the previous month's level, the biggest drop since December last year. Italy was among the countries reporting weak lending.
Business sentiment surveys showed on Wednesday that even Germany was being sucked into the bloc's economic quagmire. [ID:nL5E8LO4JB] The money supply data showed that lending to firms still rose in the euro zone's biggest economy.
Howard Archer, economist at Global Insight said the drop was due not only to growing uncertainty about the economic outlook, but also reflected banks' reluctance to give credit.
"The concern is that a number of companies who do want to borrow - whether it to be support their operations, lift investment, explore new markets - and are in decent shape are finding it hard to," Archer said in a note to clients.
"So tight credit conditions are handicapping euro zone growth prospects," he added.
Euro zone M3 money supply - a more general measure of cash in the economy - grew at an annual pace of 2.7 percent in September, slowing from a revised 2.8 percent in August. The consensus in a Reuters poll of analysts was for a reading of 3.0 percent.
Italian and Spanish banks bought more government bonds in September, data published in conjunction with money supply data showed, after the ECB announced its new bond-buying program.
(Reporting by Sakari Suoninen and Eva Kuehnen; Editing by Ruth Pitchford)