FRANKFURT, July 24: Europe’s battered financial sector is showing tentative signs of healing, even if it is still too early to sound the all-clear, a key ECB survey showed on Wednesday.

Credit conditions in the euro area may still be tightening, but are set to do so at a slower rate in the coming months, the European Central Bank found in its quarterly bank lending survey. The net percentage of banks expecting to tighten their loan criteria for businesses and households was unchanged at 7.0 per cent in the second quarter compared with the first quarter, the ECB said.

But the proportion was expected to decline to 1.0pc in the third quarter. At the same time, the survey found that banks’ access to retail and wholesale funding had continued to improve in the second quarter of 2013 as the eurozone sovereign debt crisis abated, the ECB said.

However, “in the third quarter of 2013, euro area banks expect a marginal deterioration in funding conditions for most market segments, except in the case of retail funding,” it cautioned. On the demand side, “developments in the second quarter of 2013 were mixed,” the ECB found.

On the one hand, fewer euro area banks reported a decline in the demand for loans. On the other hand, this net percentage remained below the historical average. Among a wide range of emergency anti-crisis measures, the ECB has pumped unprecedented volumes of liquidity into the financial system to avert a dangerous credit crunch.

But banks have been slow to lend that money on to businesses, particularly in the countries hardest-hit by the crisis.—AFP