Loan Growth Too Weak To Boost Eurozone Recovery: Analysts

Loan growth too weak to boost eurozone recovery: analysts

FRANKFURT, (UrduPoint / Pakistan Point News - 27th july,2016) - European banks are lending more to consumers and businesses but not enough to boost economic growth, analysts said on Wednesday based on new figures from the European Central Bank. Loans from eurozone banks to households and companies grew 1.1 percent in June, the same pace as in April and May, the European Central Bank said on Wednesday. Discounting strictly financial transactions, loans grew by 1.4 percent -- picking up speed over May's 1.2 percent increase and April's 1.0 percent. But while the figures are "a tentatively encouraging sign, it's early days to suggest that's going to lead to a stronger pickup in economic growth," analyst Jack Allen of Capital Economics told AFP. "I still find it difficult to really see that it's going to help the eurozone recovery," Carsten Brzeski of ING Diba bank agreed. Low lending by banks to the private sector has long been blamed for contributing to the slowness of the economic recovery in the eurozone. In the first half of 2016, the ECB took a sequence of steps to try and boost lending -- many of which had not taken full effect by June. It lowered interest rates and expanded its quantitative easing programme, which by buying up safe-haven government bonds aims to force investors to place money in the real economy.

It also introduced so-called "targeted long-term refinancing operations" that offers banks cheap funding but requires them to in turn to lend it on to firms and households. But fierce headwinds face the ECB as it struggles to support growth in the eurozone, analyst Allen said. Banks are less willing to lend in the face of the uncertainty triggered by Britain's vote to quit the EU and fears over the condition of the banking sectors of some member states, including Italy. Meanwhile, the boost to the economy from low oil prices and the weak euro is all but over. Against that background, the lending data was "positive, but no reason to stop" the ECB from doing more, ING's Brzeski said. June's loan data may add to the arguments for the ECB to extend quantitative easing past the current March 2017 deadline. Bank chief Mario Draghi may also do away with a rule that bans the ECB buying bonds with a yield lower than its own bank deposit rate of interest. But beyond that, "there is hardly anything they can do," Brzeski said.