Eurozone bank audit weighing on lending: ECB chief

(FRANKFURT) - The prospect of an upcoming audit by European authorities is weighing on lending by eurozone banks, European Central Bank chief Mario Draghi said Thursday.

"In the short term, one consequence of the asset quality review (AQR) is that banks have to clean their balance sheets and that has an effect on lending," Draghi told a news conference.

"Lending levels are lower than if the AQR had not been there," he said.

The asset quality review will be undertaken by the ECB this year as part of a comprehensive assessment of the financial health of the eurozone's banks as the single currency area sets up an area-wide banking union.

In order to pass muster in the review, banks are cleaning up their balance sheets, offloading risky or non-performing loans.

But in the longer term, the process "will be positive for lending because it will increase confidence in the banking system," Draghi argued.

The current negative effect of the AQR would likely prove only temporary because the review is based on banks' balance sheets at the end of 2013, he said.

In its regular bank lending survey (BLS) at the end of January, the ECB found that Europe's battered financial sector is showing tentative signs of healing, even if it is still too early to sound the all-clear.

Banks are set to ease up on credit conditions and increase the availability of loans for businesses, the survey suggested.

But demand for business loans remains weak, it found.