Lending to Europe’s businesses falls 3.1%

Manufacturing up in Italy, Spain

Pedestrians in Barcelona, Spain, pass a bank branch last month. European banks extended fewer loans to companies in November, a sign the continent’s economic recovery remains weak.
Pedestrians in Barcelona, Spain, pass a bank branch last month. European banks extended fewer loans to companies in November, a sign the continent’s economic recovery remains weak.

FRANKFURT, Germany - European banks are lending less to companies, the European Central Bank reported Friday, in another sign the continent’s economic upswing remains less than robust.

Loans to companies slipped 3.1 percent in November from a year earlier, the European Central Bank said. The drop was sharper than the previous month’s 3 percent.

Analysts say banks can be reluctant to lend given uncertain growth prospects that mean increased risk they won’t be repaid. Some companies, meanwhile, may not want to risk borrowing. Others don’t need credit because they are sitting on adequate cash reserves - but don’t yet see a reason to invest that cash in new production.

The economy of the eurocurrency union - a bloc that grew from 17 to 18 members in the new year with Latvia’s accession - expanded by only 0.1 percent in the third quarter last year, with unemployment at 12.1 percent. Governments’ efforts to reduce debt by cutting spending and raising taxes have weighed on growth.

Analyst Howard Archer at IHS Global Insight said the weak figures increased pressure on the European Central Bank to add stimulus to the economy in the coming months. He said the central bank could offer cheap, long term loans to banks on the condition the money is used for lending.

Archer expects the European Central Bank to keep its benchmark lending rate at the current record low of 0.25 percent “through to 2015, although it is not inconceivable that it could trim it to 0.1 percent or even 0 percent.”

Lower interest rates can stimulate growth. But the problem is the European Central Bank’s already-low benchmark rates are not being passed along by banks. So the central bank is looking at other measures, such as the targeted loans.

Analyst Michael Schubert at Commerzbank said that providing such loans could be complex, noting some European Central Bank officials have expressed concern about interfering in banks’ market based decision-making. Those considerations “suggest that for now the ECB council will remain in wait-and-see mode,” he said in a note to investors.

The European Central Bank’s rate-setting council meets Thursday. Several analysts said no rate change is expected.

There were some positive signs Friday for the European economy.

Data showed manufacturing in Italy and Spain expanded more in December than economists forecast. An Italian gauge based on a survey of purchasing managers climbed to 53.3 from 51.4 in November, while Spain’s was 50.8, beating a forecast of 49.8 in a Bloomberg News survey.

The European Union nations with smaller economies “posted an impressive start into the year, aided by significant upside surprises in the Spanish and Italian manufacturing,” Markus Koch and Peggy Jaeger, analysts at Commerzbank AG in Frankfurt, wrote in a note to clients.

Spain’s two-year recession ended in the third quarter when the economy grew 0.1 percent from the previous three months. The Bank of Spain said in its monthly economic bulletin last week that early data showed the improvement in the economy had carried into the final part of 2013.

Information for this article was contributed by Lucy Meakin of Bloomberg News.

Business, Pages 27 on 01/04/2014

Upcoming Events