Eurozone banks to ease business loan terms amid pandemic (ECB)

FILE PHOTO: The European Central Bank (ECB) headquarters building is seen in Frankfurt, Germany July 20, 2017. REUTERS/Ralph Orlowski

FRANKFURT (Reuters) – Eurozone banks expect demand for emergency credit to rise again in the second quarter and are expected to respond with looser credit standards as government guarantees and Liquidity measures will come into effect, the European Central Bank announced on Tuesday.

With much of the continent in lockdown to stem the spread of the coronavirus pandemic, the eurozone economy could shrink by a tenth this year and businesses are scrambling to find financing to stay afloat until the end of the day. reopening of the economy.

Credit standards, or banks’ internal loan approval criteria, for business loans tightened in the first quarter, but the deterioration was “mild” compared to the global financial crisis and debt crisis that followed, partly because of government measures, the ECB added.

Central bank liquidity measures and government guarantees will come into full effect in the second quarter, so banks expect a substantial easing of their credit standards in the three months to June, the ECB added. based on a survey of 144 lenders.

Among the larger eurozone countries, corporate lending standards tightened the most in Germany and Italy, while in France they remained broadly unchanged.

“Demand for corporate loans or credit line drawdowns surged in the first quarter of 2020, driven by businesses’ urgent liquidity needs,” the ECB said. “In the second quarter, business loan demand is expected to increase further, reaching the highest net balance since the start of the survey in 2003.”

Borrowing households face more difficulties as credit standards tightened in the first quarter and further deterioration in the second quarter is also likely, the ECB added in a survey conducted between March 19 and April 3, at most. fortified by the coronavirus shutdown in Europe.

Reporting by Balazs Koranyi; Editing by Francesco Canepa, Kirsten Donovan