Chastened banks tighten up on lending: ECB

FRANKFURT (AFP) - Anyone looking for a bank loan is finding it tougher because of the recent financial market turbulence and there is little short-term relief in sight, a European Central Bank survey shows.

Eurozone banks in a quarterly poll by the ECB said on average that they had tightened conditions for both business and household lending, potentially spelling trouble for the wider economy as activity slows.

"Banks reported that credit standards for loans to enterprises were more affected by the turmoil than credit standards for loans to households," the ECB said in its survey of bank lending across the 15-nation eurozone.

"In particular, the situation in financial markets had a larger impact on loans to large enterprises than on loans to small- and medium-size enterprises," the central bank added.

The survey suggests that the fallout from the collapse of the US market for high risk, or subprime, mortgages was spreading wider, hitting people looking for consumer credit and companies needing loans to stay in business.

That is cause for concern given recent data showing that the eurozone economy is slowing generally.

The banks, hit by billions of dollars of losses on their exposure to the US subprime home loan crisis, have in many cases been forced to raise fresh capital themselves to repair their tattered balance sheets.

Swiss banking giant UBS, the worst affected, has written-down some 37 billion dollars, announced two cash calls and plans major job cuts as it puts its house in order.

"Even though the financial market crisis appears to be abating, loans are increasingly difficult to come by," UniCredit Markets economist Mikolaus Keis said in a research note.

The ECB survey showed that a net 49 percent of banks had tightened standards on loans to companies in the first quarter, while a net 33 percent did so on loans for house purchases.

Those numbers increased from 41 percent and 21 percent, respectively, in the bank's January poll.

UniCredit Markets economist Marco Valli noted that the corporate loan figure was now "at its highest level since early 2003," a time when economic growth and business investment were both stagnating.

Economist Ben May at Capital Economics said "there are growing signs that previously strong rates of lending growth to households and firms will ease."

Banks "have raised the margins on loans and to a lesser extent implemented more stringent non-price terms and conditions," May said.

"It seems increasingly likely that the credit crisis will have a prolonged impact on banks' risk appetite which should lead to a widening in banks' loan margins" -- or higher costs for customers, May said.

A net 54 percent of banks said the financial market situation had led them to tighten credit standards for loans and credit lines to large companies, compared with a net 34 percent in the case of loans to smaller firms.

Tighter conditions on home loans were reported by a net 29 percent of banks surveyed and by 19 percent for consumer credit and other loans to households.

At the same time, Trichet noted that eurozone bank lending remain strong but economists believe companies are making greater use of credit lines they had already established with banks after finding it harder to raise funds in the capital markets.

Meanwhile, overall demand for mortgages has fallen, essentially as a result of "deteriorating consumer confidence and worsening housing market prospects," the ECB said.