LENDING to companies and households in the Eurozone shrank further in December, as borrowers remained cautious about the direction of the currency bloc’s economy.
Private sector lending fell 0.7 per cent in December compared to a year ago, after a 0.8 per cent fall during November, figures from the European Central Bank showed.
The drop, representing the eighth successive month of decline, came in spite of the ECB’s loose monetary policy that is intended to encourage borrowing.
The monthly flow of loans to households fell €3bn (£2.57bn) in December, compared to a rise of €6bn in November, while loans to non-financial corporations dropped €22bn, accelerating from a €7bn fall the prior month.
Spain and Portugal bore the brunt of the declines in private sector lending, the figures showed.
“Today’s Eurozone bank lending figures provide a timely reminder that the economic situation in the 17-country region remains very fragile,” said ING economist Martin van Vliet in a note.
Overall, the M3 money supply increased 3.3 per cent on a year ago, slowing down from 3.8 per cent the previous month, according to the ECB.
“So long as credit growth to the private sector remains weak, however, this is unlikely to set the inflationary alarm bells ringing in Frankfurt,” added van Vliet.
These figures mask a rise in bank deposits in several countries on the periphery of the Eurozone.
Greek bank deposits rose by €6.4bn or four per cent in December, after a spell of stability since June, while private sector deposits at Italian banks rose by 3.7 per cent to a record €1.497 trillion.
The Greek banking system holds around a third less in deposits than it did before the sovereign debt crisis sent the country’s economy into a tailspin.
The rise in deposits can nevertheless be taken as a sign of faith in the Eurozone’s banks, suggesting fear of an outright banking collapse is receding.
In Ireland, deposits decreased one per cent to €197bn and Portugal’s deposits fell by 1.4 per cent to €210.4bn, showing that confidence across the bloc remains patchy.