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ECB says Euro-area lending increased in July after contraction

Banks indicated last month they expect loan demand to decline

European Central Bank (ECB) headquarters in Frankfurt
Image Credit: Reuters
European Central Bank headquarters in Frankfurt
Gulf News

Lending to households and companies in the 17-nation euro area increased for the first time in three months in July.

Loans to the private sector rose 0.1 per cent from a year earlier after dropping an annual 0.2 per cent in June, the Frankfurt-based European Central Bank said on Tuesday. Lending increased 0.3 per cent from the previous month, the first gain since January 2012.

Euro-area leaders are bracing for a series of decisions next month that will involve the formulation of an ECB bond buying plan, a progress report by Greece’s international creditors and a German court ruling on bailout funding. Banks indicated last month they expect loan demand to decline in the third quarter as the euro-area economy edges toward recession.

“We’ll continue to see a weak development with regard to loans,” said Thomas Harjes, an economist at Barclays in Frankfurt. “Demand, especially in southern Europe where economies are in recession, is very weak. But credit supply also plays a role as some banks have become very careful.”

Commerzbank AG, Germany’s second-largest bank, said on August 9 that profit will fall “significantly” in the second half of the year as slowing economic growth results in higher loan-loss provisions and mutes clients’ demand for services.

The euro-area economy contracted 0.2 per cent in the second quarter as the region’s debt crisis eroded investor confidence and governments cut spending and jobs to reduce budget deficits. Services and manufacturing output shrank for a seventh month in August, adding to signs of a deepening slump.

The rate of growth in M3 money supply, which the ECB uses as a gauge of future inflation, quickened to 3.8 per cent from 3.2 per cent in June, the ECB said.

M3 grew 3.4 per cent in the three months through July from the same period a year earlier. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings.