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By Francesco Canepa
FRANKFURT, Oct 20 (Reuters) - Credit standards for euro zone companies eased more than expected in the third quarter of 2015 as banks awash with central bank money competed for customers, a European Central Bank survey showed on Tuesday.
Banks said they were using additional liquidity from the ECB’s 60 billion euros a month asset-purchase programme (APP) to grant loans, providing some comfort to the ECB as it looks for evidence that its quantitative easing scheme is working its way into the economy despite anaemic inflation.
A net 4 percent of respondents in the ECB’s Bank Lending Survey said they were easing credit standards on loans to enterprises, more than they forecast three months earlier, and expected to continue to do so in the last quarter of the year.
“The APP had a net easing impact on credit standards and particularly on credit terms and conditions,” the ECB said in its quarterly survey of 141 of the euro zone’s largest banks.
“This easing impact was greatest for loans to enterprises.”
Standards eased mainly on loans to small- to medium-sized enterprises, which form the backbone of the euro zone economy.
Among the bloc’s largest countries, lending standards became easier in Italy, remained unchanged in Germany, Spain and the Netherlands, and tightened in France.
Companies’ demand for loans also rose, albeit by less than expected, and a “further considerable increase” was expected in the last quarter of the year.
Standards on consumer credit eased while those on household mortgages tightened slightly, particularly in the Netherlands, where regulation changed.
Conditions on new loans eased across the board thanks to stiffer competition.
“When negotiating... the conditions for new loans, banks continued to ease their terms and conditions on loans across all categories, mainly driven by a further narrowing of margins on average loans,” the ECB said.
“As with credit standards, the main factor contributing to the easing in terms and conditions was competition.”
This increased competition, driven by the ECB’s stimulus programme, was starting to take a toll on banks’ margins.
While a small majority of banks reported an increase in profitability over the previous six months, a negative effect was expected for the immediate future.
“The impact of the APP on banks’ profitability over the past six months has reflected ... a positive effect in terms of capital gains and a negative effect from the tightening of net interest margins,” the ECB said.
“Overall, a slightly positive net percentage of banks report an increase in profitability over the past six months, as a result of the APP, though a marginally negative effect is expected over the next six months.” (Reporting By Francesco Canepa; Editing by Balazs Koranyi and Catherine Evans)