Euro-Zone Banks Tighten Credit Standards

FRANKFURT -- Banks in the euro zone further tightened their credit standards in the second quarter, and companies and households may face slightly tougher requirements in the current quarter, the European Central Bank said Wednesday.

The second quarter was the eighth-straight quarter that banks tightened their lending standards, but the degree of tightening slowed significantly, the ECB's July Bank Lending Survey showed.The restraint comes despite generous liquidity provisions from the ECB to the region's financial institutions, and governments' efforts to ease the credit crunch.

Banks tightened credit requirements because of a generally weak economic outlook and lingering concerns about certain industries, the ECB said.

The central bank's poll showed that 21% of the banks surveyed tightened standards applied to the approval of loans or credit lines to companies in the second quarter, compared with 43% in the preceding period. None of the banks eased rules. A total of 118 banks from across the euro zone participated in the poll.

"Particularly supply-side factors, such as banks' access to market financing and banks' liquidity position" prompted a change in dynamics, the survey said.

The survey showed that 22% of banks tightened their mortgage standards to households, compared with 28% in the first quarter.

"Banks' cost of funds and balance sheet constraints contributed to a slight further tightening of credit standards for loans to households," the ECB said.

Corporate-loan demand eased further because of "a strong decrease in the financing needs for fixed investment and by a further considerable fall in demand stemming from mergers and acquisitions, and corporate restructuring," link....