Credit tough for SMEs in euro zone: ECB survey

FRANKFURT, GERMANY: Small and medium sized companies (SMEs) in the euro zone are struggling to get bank funding, with banks increasingly turning down loan applications, a European Central Bank survey, which captured the immediate aftermath of its two major cash injections, showed on Friday.

The survey is likely to take some of the shine off the more upbeat results from the ECB's bank lending survey, which earlier in the week showed that banks expect to end the recent trend of tightening the rules for companies to obtain credit. 

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The difficulties these firms are having finding loans will do little to improve the outlook for the stalling euro zone economy, with firms in the bloc's heavily indebted states particularly under pressure.

Looking at more than 7,500 firms, the survey said that while demand for funding had risen between October and March, loans were harder to come by, with a fifth saying the situation had deteriorated, compared with 14 per cent in the previous round.

The survey added that in six months ahead, the firms expect a further slight deterioration in their access to bank loans and bank overdrafts.

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"It shows that we continue to have a difficult environment in terms of funding," said Juergen Michels, economist at Citigroup. "The ECB's LTROs help to ease the pressure, but they won't turn the situation around."

The ECB flooded financial markets with over one trillion euros with twin 3-year funding operations - or LTROs - in December and February and financial markets are now looking for signs whether the cheap money is reaching the real economy.

"It will take some time, but there are already some signs that the money is filtering through taking this week's bank lending survey into account," Michels said.

The ECB bank lending survey showed fewer banks tightened their lending rules in the first three months of the year than in the previous quarter.

The ECB's latest report showed the building sector was hit the hardest, while smaller firms said their applications for loans were being more regularly rejected.

In contrast, larger firms found it easier to get access to bank loans, seeing only a four per cent drop in net terms, compared with 10 per cent in the previous survey.

That split is likely to have played a role in the changes the ECB made to its lending rules at the end of last year, which were designed to make it easier for smaller banks - which typically fund local businesses - to get cheap funding from the central bank.

Breaking it down by country, firms in countries hardest hit by the euro zone debt crisis suffered the most. The biggest deterioration in credit availability since the previous survey was in Belgium, Spain and Italy.

Almost half of Greek firms had seen credit availability worsen, and about one-third in Portugal and Ireland.