ECB’s improving credit provisions likely to provide growth momentum in 2016

Declining bank lending and tightening lending standards weighed on Eurozone's growth during the sovereign crisis. However, with gradual increase in bank lending and easing lending standards, the growth has moderately steadied. According to the ECB's bank lending survey report released this week, the positive trend continued in the fourth quarter of 2015, with banks expecting further improvement during the current quarter.

Credit standards for non-financial corporates continued to ease in the fourth quarter of 2015; while banks reversed the previous quarter's tightening of credit standards on mortgages. Net loan demand was firm in all sectors, while corporate loan demand increased to 27% from 16%, facilitated by the prolonged low level of interest rates and high capex-related demand. Loan demand for mortgages boosted as 29% of banks reported that the demand increased, down from 33% three months ago.

"In our view, it is very encouraging that the trend toward credit easing remains intact, in the face of growing headwinds. In turn, easier financing conditions should gradually lead to a broader recovery in capex, which so far has lagged the more dynamic behavior of consumption. We also note that the easing in the financing environment continues to be more intense in the periphery, in line with our view that a lasting upturn in credit provision will be key in sustaining growth momentum in 2016" - JP Morgan