* Lenders fear rise in non-payment of loans
* France and Spain saw biggest tightening of purse-strings
* ECB to reaffirm easy-money policy on Thursday (Adds detail and context)
FRANKFURT, Jan 19 (Reuters) - Euro zone banks expect to tighten access to credit further in the first quarter of this year, the European Central Bank’s quarterly lending survey showed on Tuesday, just as pandemic-related lockdown measures force many firms to rely on emergency cash.
With much of Europe’s economy under some form of restrictions for the past year, bank credit has been vital in keeping companies afloat, and the ECB has focused much of its stimulus effort on keeping ultra-cheap credit flowing to the real economy.
But lenders have been making access to credit harder and more expensive, fearing that cash-strapped consumers and firms may be unable to pay back, and expect to continue doing so.
“Euro area banks expect a continued net tightening of credit standards on loans to firms in the first quarter of 2021, reflecting the continued uncertainties around the further development of the pandemic and its effects on borrowers’ credit risk,” the ECB said.
Banks also expect to tighten access to housing and consumer credit, the ECB added. Its report was based on a survey of 143 banks done between Dec. 4 and 29, just as restrictive measures were being tightened across much of the currency bloc.
Fearing that banks will tighten their purse strings too far, the ECB offered lenders even more credit at minus 1% last month, provided they pass the cash on to firms, many of which have been mothballed, waiting for pandemic-related restrictions to be lifted.
But banks are under pressure, including from the ECB’s own supervisors, to keep their balance sheets clean and build buffers for an expected surge in non-payment of loans.
Banks in the ECB’s survey said supervisory measures had strengthened their capital position and helped funding but also caused them to tighten credit standards.
The quarterly lending survey is a key input into ECB deliberations and comes just two days before a policy meeting that will reaffirm the bank’s ultra-easy policy but is unlikely to approve any further stimulus measures.
TIGHTENING IN FRANCE AND SPAIN
Of the euro zone’s four largest economies, France and Spain saw the largest proportion of banks reporting a tightening in credit standards for companies as well as falling demand.
Even firms that did get loans had to post more collateral or, for riskier loans, pay a bigger premium, the survey indicated.
By contrast, Italy saw demand for corporate credit surge, boosted by debt refinancing and renegotiation, and kept standards unchanged.
Banks said companies still mainly needed credit for financing inventories and working capital but this type of demand was easing, in a sign that firms had built sufficient buffers in the early part of the pandemic.
Still, banks expect demand for corporate credit to increase moderately, especially for short-term loans and for small or medium enterprises.
In the case of housing loans, demand is expected to decline after rebounding in the second half of 2020, helped by the ECB’s low interest rate. (Reporting by Balazs Koranyi; Editing by Francesco Canepa and Kevin Liffey)
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