FRANKFURT, Oct 5: Eurozone banks are likely to tighten credit, especially to big companies, following recent upheaval in money markets, the results of a European Central Bank (ECB) survey released on Friday showed.

“Nearly 50 per cent of the banks said that the credit market events were expected to contribute to a tightening of credit standards for loans and credit lines to large enterprises over the next three months,” the survey said.

Loans to businesses would be affected more than loans to households, and the effect would be felt mostly by large groups seeking long-term funds for acquisitions and restructuring, it added.

The October 2007 survey of eurozone banks was released almost a month early “due to the credit market tensions which began this summer,” the ECB said.

Bank of America economist Gilles Moec noted that “the financial market turmoil is trickling down to the businesses and to a much lesser extent to households.”

Credit standards for corporate lending were now at their highest level since the second quarter of 2003, he said.

In August, fears about the US market for high-risk home loans erupted as several major banks and financial groups reported large losses linked to mortgage-backed securities.

The ensuing shockwave, which triggered sharp falls on global stock markets, forced banks to tighten their lending standards, which in turn sparked a credit crunch.

“The tightening seemed mainly to affect large transactions, such as loans granted to finance acquisitions,” ECB president Jean-Claude Trichet said in Vienna on Thursday ahead of the survey’s release.

“Looking forward, banks expect to tighten credit standards further in the fourth quarter of 2007,” he added.

Lending to households was also affected by a deterioration of housing market prospects in countries like France and Spain, Moec said, and by expectations that economic activity would slow later this year.

Demand for such loans was lower, in part owing to “a worsening of consumer confidence,” the bank survey found.

Moec noted that banks had moderately eased standards for consumer credit in the third quarter.

That was explained by a slight increase in competition, he said, estimating that “banks probably tried to shift their retail lending towards consumer credit.”

However, they “seem to be convinced that credit market difficulties will persist,” reinforcing the probability the ECB would leave interest rates unchanged until well into 2008, Moec said.

Trichet had highlighted “heightened uncertainty” regarding the outlook for eurozone growth as a result of the credit crisis.

Banks that responded to the ECB survey “expect credit standards for consumer credit and other lending to households to tighten considerably” in the coming months, the central bank said.

—AFP