Chart 4. Changes in credit standards applied to the approval of loans to households for house purchase - - net percentages of banks reporting a contribution to tightening credit standards.

The European Central Bank (ECB) said on Wednesday in its quarterly lending survey of Eurozone banks that credit conditions have eased. Meanwhile, Irish banks in the survey reported that they tightened their rules/criteria for lending to mortgage customers and businesses in the third quarter of 2009, while demand for loans also fell, according to the results.

The ECB said in its Euro Area Lending Survey that in the third quarter, the net percentage of banks reporting a tightening of credit standards applied to loans and credit lines to enterprises declined considerably, to 8%, compared with 21% in the second quarter, bringing the net tightening close to a halt.

The ECB said this development confirms the indications of a turning-point in the tightening trend observed at the time of the April 2009 survey. At the same time, it said it needs to be kept in mind that the cumulated net tightening during the financial turmoil has not yet started to reverse itself and remains very substantial.

All factors contributed to the decline in the net tightening of credit standards. The most important driving forces for the net tightening in the Eurozone continued to be expectations regarding general economic activity and the industry or firm-specific outlook.

The central bank said some of the supply-side factors, namely banks’ access to market financing and banks’ liquidity positions, contributed to an easing of credit standards for loans to enterprises. For the fourth quarter of 2009, the Eurozone banks expect a slight net easing of credit standards for loans to enterprises (-1%).

The net percentage of banks reporting a tightening of credit standards for loans to households for house purchase and for consumer credit decreased further to 14% (from 22%) and to 13% (from 21%), respectively, in the third quarter. The decline in the net tightening of loans to households was driven by a lower perception of risks by banks regarding general economic activity and, in the case of housing loans, housing market prospects.

The survey of 118 banks, is conducted four times a year, usually at the beginning of each quarter. The latest survey round once again included a set of ad hoc questions that were aimed at gauging the extent to which the financial market tensions experienced since the second half of 2007 have affected banks’ credit standards for loans and credit lines to enterprises and loans to households in the Eurozone. The cut-off date for the receipt of data from banks participating in this survey was October 02, 2009.

Irish lending

On Wednesday, the Irish central bank released the results of the survey of Irish banks.

The survey shows that during the third quarter, credit standards on loans to Irish enterprises tightened and the demand for loans from enterprises decreased further. However, credit standards on loans to enterprises are expected to remain unchanged during the fourth quarter of 2009.

Regarding loans to households, a tightening of credit standards was reported on loan to households for house purchase during the third quarter with credit standards reported as unchanged in the case of loans to households for consumer credit and other lending. The demand for loans from households decreased across both categories examined during the third quarter of 2009 although demand is expected to remain unchanged during the final quarter of 2009.

Earlier government announcements regarding recapitalisation support and state guarantees have facilitated access to wholesale funding markets although access to these markets remained challenging during the third quarter of 2009.

Credit standards on loans to enterprises tightened during the third quarter of 2009 - - the ninth successive tightening.