Euro Zone Private Sector Loan Growth Slows

Bank lending growth to companies and households slowed sharply in the euro zone in February in annual terms compared to the previous month, data from the European Central Bank showed Wednesday, reflecting that lending has remained weak despite the ECB's massive amount of cheap three-year loans to banks.

Bank lending growth to the private sector slowed to 0.7% in February compared with the year-earlier period, after rising by an unrevised 1.1% in January, ECB data showed.

The effects on lending of banks' similarly huge, over half a trillion-euro uptake of the ECB's second offer of its longest-ever, three-year loans will only be visible in the money growth data in the coming months since the allotment took place Feb. 29, too late in the month to make an impact on the data released Wednesday.

The annual growth of the broad monetary aggregate known as M3 accelerated, meanwhile, in February to 2.8% compared with January's unrevised 2.5% growth rate, most likely as the result of the ECB's three-year loans allotted in December. M3 already increased sharply in January as a result of the ECB's first offer of the three-year loans to banks in December and also due to improved market sentiment.

February's M3 growth of 2.8% is sharply faster than the median expectations of analysts in a Dow Jones Newswires poll for a growth rate of 2.4%.

Growth in monetary aggregates and in lending to the private sector has both remained at low levels when compared to their average growth rates since the launch of the euro, ECB President Mario Draghi said Monday. The average growth rate of M3 has been 5.9% and that of private-sector lending has been 6.8%, Draghi said.

A significantly higher number of small banks borrowed cheap long-term ECB money in February compared with the first offer of the three-year loan window in December. That has raised the ECB's hopes that lending to the private sector, especially to the small and medium-size firms, which provide a large number of jobs and could contribute to the economic recovery, will rise, Draghi said.

Calming financial markers and prompted by a deepening of the euro-zone's sovereign debt crisis in the five months of 2011, the ECB lent a total of more than EUR1 trillion to banks operating in the euro zone via its three-year loans to prevent a credit crunch and boost lending.

M3 increased 2.3% on the year on average in the December-February period, outpacing the previous three-month period's 2.0% increase. That's also faster than expectations of experts polled by Dow Jones Newswires for a three-month moving average growth rate at 2.1%.

The three-month average still remains well below the ECB's "reference value" of 4.5%, which it considers to be consistent with its price-stability mandate of an inflation rate of just below 2% over the medium term. That probably indicates that inflation pressures are still muted in the euro zone.