ECB sees tentative signs of recovery for euro banks

(FRANKFURT) - Europe's battered financial sector is showing tentative signs of healing, even if it is still too early to sound the all-clear, a key ECB survey showed on Thursday.

Banks are about to ease up on credit conditions and increase the availability of loans for businesses, the survey suggested pointing to an important factor in the dynamics of the still sluggish eurozone economy.

But demand for business loans remains weak.

Credit conditions in the euro area are still being tightened, but could begin to ease again in coming months, the European Central Bank found in its quarterly bank lending survey.

The net percentage of banks expecting that tightened their loan criteria for businesses and households eased to 2.0 percent in the fourth quarter from 5.0 percent in the third quarter, the ECB said.

And for the first quarter of 2014, "euro area banks expect a further reduction in the net tightening on loans to non-financial corporations -- to reach nil -- and a more intense net easing for loans to households," the survey found.

"The January 2014 Bank Lending Survey provides further indications of stabilisation in credit conditions for firms and households, in the context of persistently weak loan demand," the ECB wrote.

On Thursday, the ECB released data showing that lending to businesses in the debt-mired eurozone contracted sharply again in December.

Private sector loans dropped by 2.3 percent in a year-on-year comparison, after already contracting by the same amount in November.

Tom Rogers of EY Eurozone Forecast said that lending survey data "suggest that the squeeze on lending to eurozone non-financial firms may have run its course, with some evidence that access to finance for small and medium-sized enterprises has started to ease."

That was positive, Rogers said.

"But risk aversion on the part of both lenders and borrowers means lending to firms is unlikely to rebound especially rapidly -- we expect loan growth of 1.6 percent in 2014, well below rates required to underpin 'normal' investment and job creation," Rogers said.

"All in all, the survey confirms the recent signs of stabilisation of credit conditions, both for firms and households. That said, loan demand remains weak," said Annalisa Piazza at Newedge Strategy.