More than six years after the financial crisis, Europe's banking sector is showing further signs of healing, the European Central Bank (ECB) has said, with banks being more willing to lend to businesses.
In its quarterly bank lending survey released on Tuesday, the European Central Bank (ECB) said eurozone banks had reported a "further net easing of credit standards on loans to enterprises."
In the first quarter of 2015, demand for business loans was also rising, the bank added - an encouraging sign that the bloc's chronically weak credit activity is gaining strength.
"Net demand for loans to enterprises continued to improve, mainly related to inventories and working capital and the low general level of interest rates," the report said.
Moreover, demand for housing loans continued to increase at "a fast pace," driven mainly by low interest rates and housing market prospects. Rejection rates for both business and housing loans declined in the period.
In the wake of the 2008 financial crisis, sluggish demand for credit coupled with a reluctance by banks to lend to businesses and households have been blamed for the absence of any noticeable recovery in the euro currency area.
QE takes effect
In its lending survey, the ECB said commercial banks were increasingly using additional liquidity provided by the central bank to boost lending.
The ECB is attempting to counter weak credit activity with historically low interest rates of 0.15 percent and has pumped billions of euros into the banking sector under a series of programs. For instance, it has been making cheap funding available to banks on the condition that the banks lend the cash on to businesses.
Most recently, the ECB has embarked on a controversial program of sovereign bond purchases, known as quantitative easing (QE), in which it is pumping more than 1.14 trillion euros ($1.6 trillion) into the market until September 2016.
"Banks indicated a net easing impact [of the asset purchase program] on credit standards and credit terms and conditions, which is expected to increase in the coming months," the survey found.
Looking ahead to the second quarter, the ECB said commercial banks were expecting a "small net easing" of credit standards and a "considerable increase" in demand for loans to enterprises.
uhe/pad (AFP, Reuters, European Central Bank)