(MENAFN- AFP) Europe's battered financial sector is showing further signs of healing as conditions for bank loans ease and demand for loans picks up, a key ECB survey showed on Wednesday.
Just a few days after the European Central Bank gave most eurozone banks a clean bill of health, its quarterly bank lending survey showed that banks are easing credit standards for customers across all loan categories.
In addition, demand for loans is also increasing, the ECB wrote.
"According to the October bank lending survey (BLS), credit standards for all loan categories eased in the third quarter of 2014," the report said.
Looking ahead, banks expect credit standards to continue to ease in the fourth quarter, and loan demand also to continue to pick up, the ECB continued.
The survery's findings should provide some encouragement to the ECB, since the chronic weakness of credit activity in the euro area has been blamed for the absence of any noticeable recovery in the 18 countries that share the single currency.
The ECB complains that its ultra-easy monetary policy has not been feeding through into the real economy, because banks are not passing the money on in loans, particularly to the small and mid-sized enterprises (SMEs) which are the region's economic backbone.
In an attempt to address this, the bank has cut its interest rates to new all-time lows and also unveiled a series of programmes to pump liquidity into the economy.
For example, it is making cheap funding available to banks via its TLTRO or targetted long-term refinancing operation programme in the hope the banks will lend the cash on to businesses.
Separately, in a bid to restore confidence in the banking sector, the ECB conducted a year-long audit -- the most in-depth and stringent so far -- of 130 eurozone banks.
The results were published on Sunday and showed that four out of five banks passed the test.
- Lending conditions still tight -
The lending survey pre-dates those audit results, but analysts were cautiously positive about the results of the latest bank lending survey, even if hurdles remain.
The data "provided further evidence of a slow improvement in eurozone credit conditions," said Capital Economics economist Jessica Hinds.
Nevertheless, "lending standards are still tight and the faltering economic recovery may discourage banks from easing them further," she warned.
The ECB survey confirmed this interpretation.
"Banks' risk perceptions concerning firms' business outlook and macroeconomic uncertainty had a slight net tightening impact on credit standards for loans to enterprises... this was consistent with the recent cooling-off in economic recovery including in core euro area countries," the survey found.
So "if the euro-zone economy fails to pick up towards the end of the year, then there is a clear risk that banks may not loosen standards as much as they currently anticipate," said Hinds at Capital Economics.
BayernLB economist Johannes Mayr said the lending survey data "support the picture of a gradual stabilisation of credit activity."
Nevertheless, "we remain sceptical and see the structural economic weakness in France and Italy as a braking effect on credit and economic growth."
Tom Rogers of EY Eurozone Forecast said the survey "offers some encouragement that the freeze in bank lending will continue to thaw, albeit very gradually and unevenly across economies."
The rebound in loan demand "suggests that the ECB's efforts to push more liquidity into banks in the coming months should help fuel a recovery in investment spending from 2015 and beyond," he said.
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