June 27, 2013 / 9:07 AM / in 4 years

Euro zone loan contraction turns up heat on ECB

FRANKFURT (Reuters) - Loans to the euro zone’s private sector contracted further in May as recession saps appetite for investment and spending while banks restrain lending as they repair their balance sheets.

Loans to the private sector fell 1.1 percent from the same month a year ago, data released by the ECB on Thursday showed, a slightly bigger fall than the mid-range forecast for a drop of 0.9 percent in a Reuters poll of economists. EUM3PC=ECI

The latest ECB data highlights one of the euro zone’s main obstacles to returning to growth as European leaders gather in Brussels for a summit at which they will also discuss possible options to revive lending to smaller companies.

“The further marked fall in lending to euro zone businesses in May maintains pressure on the ECB to come up with concrete measures aimed at improving credit availability to companies, especially small and medium-sized ones,” said Howard Archer at Global Insight.

“This is clearly a major focus for the ECB at the moment, as it looks to expand its policy toolbox to try and help overcome different financing conditions across the euro zone,” he added.

ECB policymakers have been at pains this week to stress that they are still a long way from exiting their accommodative policy stance. The ECB holds a monetary policy meeting next Thursday, though it is expected to hold interest rates for the foreseeable future.

ECB Executive Board member Joerg Asmussen will attend the European summit and said in the run-up to the event that the issue of restricted access to financing and bank loans in a number of euro zone countries would be one of the key topics.

The ECB has teamed up with the European Investment Bank (EIB) and the EU Commission to find ways to boost lending to smaller companies - a key growth driver - particularly in the bloc’s periphery countries.

Asmussen was hopeful to see progress on this front within the next few days at the summit, he said, and the ECB would assist the European institutions within its mandate.

Banks granted non-financial firms 18 billion euros less in loans in May than in the previous month, data adjusted for sales and securitizations showed, after a fall of the same amount in April.

Euro zone M3 money supply, a more general measure of cash in the economy, grew at an annual pace of 2.9 percent in May, slowing from 3.2 percent in April and in line with the consensus of analysts polled by Reuters.

Writing by Eva Kuehnen; Editing by Hugh Lawson

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