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ECB says banking sector continuing to heal, slowly

Top EU lawyer says ECB bond-buying programme legal /AFP /AFP

ECB says banking sector continuing to heal, slowly/AFP

FRANKFURT, Jan 20- Europe’s battered financial sector is showing further signs of healing as conditions for bank loans ease and demand for loans picks up, a key ECB survey showed on Tuesday. 

The European Central Bank said in its quarterly bank lending survey showed that banks are easing credit standards for customers across all loan categories. 

“According to the January 2015 bank lending survey (BLS), credit standards for all loan categories continued to ease in net terms in the fourth quarter of 2014,” the report said, while cautioning that “at the same time, it has to be kept in mind that the level of credit standards is still relatively tight in historical terms.”

In addition, demand for loans is also increasing, the ECB wrote.

“Rising net loan demand continued to be reported for the fourth quarter of 2014, in particular for loans to non financial corporations and for consumer credit,” it said.

Looking ahead, banks expect credit standards to continue to ease in the first quarter of 2015, and loan demand also to continue to pick up, the ECB continued.

The survey’s findings should provide some encouragement to the ECB, since the chronic weakness of credit activity in the euro area has been blamed for the absence of any noticeable recovery in the 19 countries that share the single currency.

The ECB complains that its ultra easy monetary policy has not been feeding through into the real economy, because banks are not passing the money on in loans, particularly to the small and mid sized enterprises (SMEs) which are the region’s economic backbone.

In an attempt to address this, the bank has cut its interest rates to new all-time lows and also unveiled a series of programmes to pump liquidity into the economy.

For example, it is making cheap funding available to banks via its TLTRO or targeted long-term refinancing operation programme in the hope the banks will lend the cash on to businesses.

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At its policy meeting on Thursday, the ECB is expected to open the liquidity floodgates still further and announce a new programme of sovereign bond purchases, known as quantitative easing or QE.

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