Eurozone private sector loans drop

Eurozone loans to the private sector contracted for a ninth month running in January, as the recession hits investment and spending and confounds the European Central Bank’s efforts to revitalise lending.

The ECB has cut interest rates to a record low of 0.75 per cent, funnelled over 1 trillion euros in crisis loans to banks and put in place a bond-buying plan to counter investors’ fears of the bloc breaking up.

But the 17-country bloc is mired in recession and the ECB expects only a gradual recovery, later this year.

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Loans to the eurozone private sector fell 0.9 per cent from the same month a year ago in January, ECB data showed yesterday, a slightly bigger fall than the 0.6 per cent drop in a Reuters poll of economists.

“The vital life blood of recovery is not coming through from the corporate sector,” said David Brown at New View Economics.

“Banks are simply not lending to businesses in the magnitude that the ECB are hoping for, while weakening economic confidence means companies are not taking up new loans for business expansion.”

Banks granted non-financial firms 8 billion euros less loans in January than in the prior month, data adjusted for sales and securitisations showed, after a fall of 19 billion euros in December.

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To make cheap money more accessible to small and mid-sized firms, the ECB is reviewing its collateral framework.

ECB executive board member Peter Praet said he saw the “green shoots” of a nascent recovery in the eurozone.

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