Euro zone banks toughened credit standards again at the end of last year and expect to continue tightening into 2009, but at a slower pace, the European Central Bank said this afternoon.
In its latest bank lending survey, the ECB said the economic outlook was the main driver behind a clampdown on credit to both households and firms in the fourth quarter of 2008, when the economy is expected to have contracted sharply.
Banks have been raising the bar for companies' and households' access to credit for six quarters now, as the financial market crisis makes institutions wary of taking on risk.
Net loan demand fell across the board in late 2008, with companies requesting less finance for fixed investment, mergers and acquisitions and corporate restructuring.
But analysts noted signs that the toughening in lending conditions - which is crimping household and corporate spending - may be starting to stabilise.
The survey of 112 banks showed that although banks expected credit standards to tighten further in the first quarter of 2009, this would be at a slower pace than at the end of 2008. Although demand for loans was expected to fall further in the first quarter, the rate of decline was also expected to ease.
"(The survey) shows that the tightening in credit conditions might have reached its most acute phase with a little glimmer of hope for some stabilization going ahead," UniCredit economist Marco Valli said.
"Nonetheless, the credit rationing is ongoing and will fully display its effects on firms and households in the rest of 2009 and maybe beyond that."
Loans to firms and households fell in December for the first time in at least 10 years and the heads of Germany's Commerzbank and Deutsche Bank have said they expect 2009 to be another tough year for banks.
Banks reported their own access to wholesale funding was still hampered by market tensions, despite ECB efforts to kickstart lending and government support for banks.
The ECB left rates on hold at 2 percent yesterday but has slashed benchmark credit costs by 225 basis points since October and is also providing banks with massive amounts of liquidity at fixed interest rates.