2016.10.1805:18:00UTC+00ECB Survey Shows Banks Set To Tighten Business Lending Credit Standards In Q4

Eurozone banks are set to tighten credit standards on business lending in the final three months of this year, while they expect to ease the same for housing loans and retain the existing levels for consumer credit, a survey by the European Central Bank said Tuesday.

Credit standards on loans to enterprises are set to be tightened in the fourth quarter, after they were left unchanged in the previous three months, the ECB's Bank Lending Survey said.

Euro area banks will be tightening access to corporate credit the first time in more than two years as negative interest rates hurt their profitability.

"Competitive pressures and, to a lesser extent, lower risk perceptions continued to have an easing impact on credit standards on loans to enterprises, while banks' cost of funds and their willingness to tolerate risk had a broadly neutral impact," the survey said.

Overall terms and conditions on new loans to enterprises continued to ease in the third quarter as margins on average loans continued to narrow, and margins on riskier loans also narrowed marginally.

Demand for corporate credit continued to increase in the third quarter and it is expected to rise further in the final three months of the year.

Credit standards on housing loans continued to ease in the third quarter and are expected to sustain the trend in the three months to December. Competitive pressures had an easing impact, as did cost of funds and balance sheet constraints and risk perceptions, albeit to a lesser extent, the ECB said.

Banks' risk tolerance had a neutral impact, while "other factors" such as teh implementation of an EU directive on mortgage credit, especially in Germany, had a marginal tightening impact, the survey said.

Terms and conditions for extending consumer credit and other lending to households were also eased in the third quarter and are expected to be retained in the final quarter of the year.

In the third quarter, credit conditions for business loans were eased in Germany, while they remained unchanged in France, Italy, Spain and the Netherlands.

France and Spain eased credit standards for housing loans, while Italy and the Netherlands left them unchanged. Germany continued to tighten access to mortgage loans.