By John O'Donnell and Paul Carrel
FRANKFURT (Reuters) - Euro zone banks have loosened their lending terms for businesses for the first time since the start of the financial crisis, the European Central Bank said on Wednesday, reducing one of the chief obstacles to an economic rebound.
Since the start of a banking collapse, which struck Germany in 2007 with the near failure of small-business lender IKB, banks in Europe have remained reluctant to lend even as the clouds of crisis gradually lift.
Now the survey of banks by the ECB has shown a possible reversal in this trend, with 3 percent of banks on balance easing their lending terms for companies in the second quarter while they predict a pick-up in such loan requests.
"Credit standards for all loan categories eased," ECB officials wrote in the closely-watched Bank Lending Survey, viewed as a gauge of the euro zone economy.
"For the first time since the second quarter of 2007, euro zone banks reported a net easing of credit standards on loans to enterprises."
Economists gave the improvement a cautious welcome. "It's an encouraging start," said James Knightley, an economist with ING.
"The fact that we are finally beginning to see European banks easing credit standards and recognising that there is greater demand gives us more optimism."
But the fragile nature of the improvement was illustrated by the difference in loan demand across the euro zone.
The disparity between export powerhouse Germany, which is now seeing a boom in house prices, and weaker nations such as Ireland, where borrowing is more expensive, remains one of the biggest challenges facing the 18-counTRY EURo bloc.
The ECB said on Wednesday that while banks saw an increase in corporate loan demand in Germany and Spain, they reported falls in the Netherlands, where economic growth has slipped, and in France.
"The big picture is for a gradual improvement," said Berenberg bank economist Christian Schulz. "Demand up is good news and reflects the lagging relationship between loan demand and the economic cycle."
CONFIDENCE SHAKY
The positive snapshot, taken before the downing of a Malaysian airliner over Ukraine and the imposition of European Union sanctions against Russia under President Vladimir Putin over its support of rebels there, could easily change.
Business confidence in Germany, for instance, has already dipped. A darkening mood amongst businesses would sap the desire to invest or borrow.
Schulz noted that banks are focusing on getting in shape for a review by the ECB of the euro zone's top lenders before it takes on supervision of the sector in November.
To breathe life into a sluggish euro zone, the ECB cut interest rates to record lows in June and introduced a series of measures to pump money into the economy.
The ECB's provision from September of new targeted lending operations to banks should offset any uncertainty about the impact on credit of the repayment of loans it made to banks at the height of the euro zone crisis.
"They should remove that uncertainty, if it was ever there, and thus support credit supply," said Schulz, who was encouraged by the second quarter growth picture in Spain and even Italy.
"So for the euro zone as a whole, I'm not too worried. We have the Putin factor and that is not going to go away. But that hits Germany most, and it hits Spain least among the largest (euro zone economies)."
"We tend to focus very much on Germany because it has been the driver of growth but Spain reporting 0.6 percent quarter-on-quarter growth in the second quarter is by no means something to be disappointed about - on the contrary, that's quite exciting."
For home loans, banks eased credit standards in net terms.
Q2 Q1
- Loans to businesses
Reporting tighter credit standards this quarter -3 1
Reporting higher loan demand this quarter 4 2
Expecting tighter credit standards next quarter -3 -5
Expecting higher loan demand next quarter 25 25
- Mortgage loans to households
Reporting tighter credit standards this quarter -4 -5
Reporting higher loan demand this quarter 19 13
Expecting tighter credit standards next quarter -1 1
Expecting higher loan demand next quarter 16 7
The survey of 137 banks was conducted from June 26 to July 11.
For a copy of the survey, click on: http://www.ecb.europa.eu/stats/money/surveys/lend/html/index.en.html
(Reporting by Eva Taylor and Paul Carrel; Editing by Catherine Evans)