Eurozone bank lending eases

Berlin - Eurozone bank lending to the private sector shrank for the second consecutive month in October, the European Central Bank said on Thursday, a sign that credit remains tight after the crisis.

Lending contracted by 0.8% last month, following a contraction of 0.3% the previous month, an ECB spokesperson said.

The contraction in September was the first negative figure since records began in 1992.

Growth of the ECB's M3 money supply indicator, which measures cash, deposits and various other financial items, fell meanwhile to plus 0.3% in October, also a record low. M3 grew by 1.8% the previous month.

Lending and money supply data illustrate consumer demand and overall activity in an economy.

Falling figures point to lower demand, which normally means inflation will ease and allow the ECB to cut interest rates. However, the rates are already at a record low of one percent and are not expected to be cut further.

Since the start of the global finance crisis, brought on by the near-meltdown of the US sub-prime housing market, struggling eurozone banks have had access to financing at favourable rates from the ECB.

And ECB boss Jean-Claude Trichet warned last week that banks must use the government cash that has propped many of them up to step up lending to bolster the economy.

"The financial sector must not forget that it is to serve the economy and not the other way around," Trichet told a conference in Frankfurt.

- AFP