Euro zone banks to tighten access to credit in Q2: ECB survey

FRANKFURT (Reuters) - Euro zone banks expect to tighten access to credit further in the second quarter, a European Central Bank lending survey showed on Tuesday, as the bloc's pandemic-induced recession drags on and now threatens to disrupt the coming holiday season.

Weighted down by over a year of lockdowns, much of Europe's services sector is surviving on emergency cash and the ECB fears that banks will turn off the money taps, forcing firms out of business and leaving the economy scarred.

Credit standards, or loan approval criteria, already tightened for firms in the first quarter and lenders see further stiffening ahead, combined with possible bounce in demand.

"This reflects banks’ uncertainty regarding the severity of the economic impact of the third wave of the pandemic and the progress in the vaccination campaign," the ECB said a quarterly lending survey.

It added that loan demand was also waning as firms were postponing investments while many were living off either liquidity buffers or direct government liquidity support.

Still, business loan demand could rebound in the second quarter, especially among small and medium sized firms as tighter containment measures raise cash needs.

For housing loans, credit standards eased slightly in the first quarter but banks expect to more than reverse this during the second quarter, even as net demand for mortgages rises, the survey showed.

The ECB has promised ultra low borrowing costs for years to come and stepped up its asset buys last month, all in the hope that lower wholesale borrowing costs would trickle down to businesses and consumers.

A key input in the ECB's deliberations, the quarterly lending survey comes just two days before the ECB's April policy meeting, at which the bank will merely reaffirm its ultra easy policy stance and may express concern about the euro's strength and rising yields.

(Reporting by Balazs Koranyi; Editing by Francesco Canepa)