* Private sector loan growth 0.6 pct y/y vs 0.8 pct in Feb
* Monthly flow of loans to firms at -5 bln eur
* Euro zone banks stock up on government bonds
* Data shows ECB LTROs yet to impact real economy
* March M3 annual growth 3.2 pct vs 2.8 pct in Feb
By Eva Kuehnen
FRANKFURT, April 30 (Reuters) – Growth in lending to euro
zone firms and consumers slowed in March as banks scaled up
purchases of government bonds, showing that an ambitious funding
drive by the European Central Bank has yet to trickle down to
the real economy.
Monday’s ECB data offered the first pointer to loan activity
since the central bank completed the second of two tenders that
flooded the euro zone’s banking sector with more than 1 trillion
euros of cheap three-year cash.
The tenders, which ended in February, “have not had a very
significant positive effect on loan growth,” said Berenberg Bank
economist Christian Schulz. “They have only averted an imminent
credit crunch, but they have not yet had a major positive impact
on growth in Europe.”
Overall money growth in the currency bloc accelerated faster
than expected in March, the data also showed, potentially
pointing to a stronger recovery ahead.
But loans to companies and households rose more slowly than
hoped while banks, notably in the struggling economies of Spain
and Italy, played safe by stuffing their coffers with sovereign
bonds.
In Spain, a heavy burden of soured property deals has made
banks reluctant to increase their lending exposure, and data on
Monday confirmed the country slipped back into recession, likely
prefiguring a similar second straight quarter of economic
contraction across the euro zone as a whole.
The currency bloc’s governments are struggling to revive
growth in the face of spending cuts, and German-led calls for
the region to continue to focus economic policy tightly on
austerity measures are slipping off the top of the agenda as
voters become increasingly disillusioned with belt-tightening.
‘LESS DEMAND FOR CREDIT’
A survey showed last week that lenders, flush with the ECB
cash, expect to end the recent trend of tightening credit rules,
but a separate study showed demand for loans – especially from
smaller companies – remains weak.
Loans to the private sector rose an annual 0.6 percent in
March, Monday’s ECB data showed, compared with 0.8 percent in
February and a Reuters poll forecast for 0.7 percent.
Meanwhile Italian banks boosted their euro zone government
debt holdings by a record 23.7 billion euros while Spanish banks
added 20.1 billion to theirs. French and German banks also
raised their sovereign debt exposure.
“Overall the (loan) numbers confirm the ECB’s view that a
large deleveraging of the banking system has been limited and
that the issue is more demand than supply,” said Nomura
economist Jens Sondergaard.
Euro zone companies said their order books were shrinking
and they were cutting jobs in reaction to falling demand as
April’s purchasing manager indices fell faster than expected.
“Companies are not investing in the weaker countries and
even in the stronger countries they remain cautious,” Berenberg
Bank’s Schulz said.
A SHIFT TOWARDS GROWTH?
ECB President Mario Draghi has put the onus firmly on euro
zone governments to get the economy going again, calling for a
“growth compact”, founded on Europe’s ‘six pack’ of tighter
budgetary rules, with the ECB focusing on price stability.
But France’s presidential election frontrunner, Socialist
Francois Hollande, wants to recast the common currency region’s
deficit-constraining fiscal compact if he wins Sunday’s
second-round vote and has urged the ECB to do more to stimulate
growth.
The central bank is unlikely to answer such calls when it
meets on Thursday, especially as euro zone inflation stayed
firmly above the bank’s target of below, but close to 2 percent
for the 17th month in a row in April at 2.6 percent, slightly
lower than in March.
In a Reuters poll of 60 economists, all but one expected the
ECB to keep interest rates at a record low of 1 percent while
most forecast unchanged borrowing costs at least until 2014.
However, the ECB is expected to try to force borrowing costs
down for the bloc’s peripheral nations by restarting its
government bond-buying programme within three months, the poll
also found.
The bank has barely used the programme since Draghi took
over in November, but the ECB chief has also made clear that any
“exit strategy” from the ECB’s emergency measures, something
Bundesbank chief Jens Weidmann has said should be discussed, was
premature given the weak economic conditions.
Month on month, the flow of loans to the euro zone’s
non-financial firms fell by 5 billion euros in March after
falling 2 billion euros in February, while loans to households
was 6 billion euros in the positive after decreasing last month.
Euro zone M3 money supply – a general measure of cash in the
economy – grew at an annual 3.2 percent in March, up from 2.8
percent in February, Monday’s data showed.
The three-month moving average of M3 growth accelerated to
2.8 percent, remaining well below the ECB’s reference rate of
4.5 percent, above which the bank sees dangers to medium-term
price stability. For table, see
