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Business

Private-sector bank lending contracts in euro area

The European Central Bank (ECB) has reported lenders in the area using the euro have handed out fewer loans to the private sector in the past couple of weeks. But it says lending conditions are not to blame.

Bank lending to the corporate sector and private households in the 17-member eurozone contracted for yet another month in December, fresh data from the European Central Bank (ECB) showed on Monday.

It said bank loans to the private sector dipped by 0.7 percent year-on-year in the final month of 2012, after declining by 0.8 percent in the previous month.

The ECB maintained that falling loans were not the result of tight lending conditions. It argued that weak demand for credit was the real reason behind the development, with eurozone growth skepticism and heightened risk aversion standing in the way of private-sector investment.

Inflation worries ease

Underpinning that there was no shortage of money available, the European Central Bank announced last week that lenders in the euro area were set to pay back early 137.2 billion euros ($183 billion) of the huge amount of the cheap, three-year emergency loans they had received from the ECB about a year ago.

Under the ECB's special long-term refinancing operations, which were launched to avert a looming credit crunch in the eurozone, lenders had the option of repaying any part of the money after just one year.

The ECB on Monday also published eurozone money supply data, indicating that the amount of money in circulation grew by 3.3 percent in December, compared with 3.8 percent in the previous month. The central bank sees the statistic as a key guide to inflation pressures and uses it to set interest rates accordingly.

hg/pfd (AFP, Reuters)