(MENAFN- AFP) A day after the European Central Bank gave most eurozone banks a clean bill of health, new data were published suggesting that depressed demand for loans in the single currency area could be stabilising.
The ECB compiles monthly statistics on loans to the private sector, which are a key gauge of economic health and particularly closely watched at the moment since chronic weakness in credit is seen as the main hurdle to a more sustained recovery in the single currency area.
The ECB's lastest data showed that in September, loans to the private sector in the euro area, fell by 1.2 percent year-on-year in September, but that was a slower rate than the 1.5-percent decline seen in August.
At the same time, the ECB calculated that growth of the overall eurozone money supply -- a barometer for future inflation -- picked up.
The two sets of data provided some room for encouragement, analysts said.
"The ECB may take a little heart from a further limited pick-up in eurozone money supply growth in September, signs that bank lending to businesses is now falling at a reduced rate and another moderate rise in lending to households," said IHS Global Insight economist Howard Archer.
On Sunday, the results of the ECB's latest stress tests cleared all but 25 of a total 130 banks as having adequate capital and being soundly based.
The assessment was broadly well received on financial markets on Monday, because it could raise confidence in the banking sector and allow banks, which have been strengthening their financial base to pass the tests, some extra margin for manoeuvre to lend if and when loan demands picks up.
- No all-clear yet -
"Overall, today's data depicts a picture of a gradual pick-up in monetary momentum in the euro area," said BayernLB economist Johannes Mayr.
But loans to companies "are stabilising only slowly and we still won't see any substantial loan momentum for the foreseeable future," Mayr said.
Archer at IHS Global Insight said the new data "may be a sign that the stimulative measures announced by the ECB in June and September are starting to have some positive impact, although it will clearly take time for all the measures to be enacted and take full effect."
The ECB has cut it key interest rates to new all-time lows and unveiled multiple programmes to pump cash into the eurozone economy.
Nevertheless, the loan data were "still hardly a robust set of data and the ECB certainly cannot start to relax yet on the bank lending and money supply front," Archer warned.
"The ECB will now be fervently hoping that the results of its European bank stress tests lift confidence in the eurozone banking system and that this encourages banks to lend more, in tandem with the ECB's stimulus measures," Archer said.
Berenberg Bank economist Christian Schulz said that "even ahead of the completion of the ECB's asset quality review, the eurozone's long absent credit cycle was beginning to show signs of life."
With the ECB stress tests now completed and passed by most banks, that "could inhale new life into the credit cycle in coming months," Schulz said.
"After spending great resources on the assessment in most of 2014, banks can now focus on their business again and take on new risks. Even if it will still take time to restore confidence between banks that should help further gradual progress in credit availability," Schulz concluded.
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