Banks say ECB money printing has small impact on lending - survey

By Francesco Canepa

FRANKFURT (Reuters) - The European Central Bank's asset-purchase programme is hurting bank profits while its contribution to easing lending conditions is small or diminishing, an ECB survey of lenders showed on Tuesday.

The modest result in a poll of 141 euro zone banks in March may draw more criticism of ECB President Mario Draghi, who has come under renewed fire from Germany for printing money to boost the economy.

The ECB's bank survey showed that, on balance, only a slight majority of lenders had eased their credit standards, which determine who gets a loan, as a result of the programme in the six months to March.

This was broadly in line with the October survey, when this question was last asked.

The purchases had a more pronounced effect on easing the terms and conditions applied to loans, such as the interest rate charged, but the effect appeared weaker than in the earlier survey.

At the same time, banks said they were seeing their net interest margin squeezed as a result of the purchases, which increase the amount of cash in the euro zone's financial system and drive down rates.

On balance, 81 percent of banks reported a decline in their net interest income as a result of the ECB's negative deposit rate, effectively a charge on parking cash with the central bank.

The ECB increased the amounts of assets it buys each month by a third and cut its three main rates in March. It is not expected to make any policy change at its rate-setting meeting on Thursday.

The central bank is buying 80 billion euros worth of securities, mainly government bonds, every month in a bid to stimulate lending and, with it, inflation in the euro zone.

HOME LOANS

While loan supply conditions for companies eased in the first quarter of the year, banks tightened their standards for granting home mortgages and expect to continue to do so this quarter, the survey showed.

A net 4 percent of the banks surveyed by the ECB reported a tightening of their internal guidelines as to who should get a loan for a house purchase.

The tightening was mainly related to the implementation in Germany of the EU mortgage credit directive, which requires banks to carry out a deeper assessment of borrowers, and to a slightly lower tolerance of risk.

Among the bloc's largest economies, banks in the Netherlands and Germany tightened conditions while their counterparts in Italy and Spain eased them.

Euro area banks expect a continued net tightening of credit standards for household mortgages in the second quarter of 2016.

Terms and conditions applied to home mortgages that were granted in the first quarter eased in all major economies apart from Germany, however.

In particular, banks lowered the margin they earn on loans, even though they raised the collateral required and tightened the ratio between the amount lent and the value of the property.

The rejection rate for home mortgages fell while demand from customers increased.

(Reporting By Francesco Canepa; editing by John O'Donnell and Richard Balmforth)