Yesterday we reported that [11] in an attempt to unclog Europe's broken credit and monetary piping, European regulators are preparing to get their hands dirty by easing rules on, and unleashing, an asset class once labelled toxic sludge, i.e., all the worst of the worst debt that was the reason why Europe is in a 6 year-old depression, and hope and pray it somehow fixes itself. Today, the ECB reported [12]the latest data on European credit creation in the private sector. Or rather lack thereof. Because at -2.2%, this was essentially an all time low private sector loan "growth" (rather, credit destruction). Which means Europe will have to throw all the toxic sludge it can find in its desperation to reignite yet another credit bubble, something Bernanke's cronies appear to have done far more admirably.
[13]
Here is the detailed data breakdown via GS:
- Lending to non-financial corporations, on a seasonally-adjusted basis, declined by €12.6bn in February, following a €9.3bn decline in January (revised down from -€5.8bn). The decline was similar when adjusted for securitisations and sales. This fall signals some renewed weakness in lending after the rate of contraction in loans to NFCs had moderated over the past few months (Chart 1).
- Loans to households rose by €5.6bn in February, having fallen by €1bn in January. Unlike corporate lending, loan growth to households remained broadly unchanged between early 2012 and early 2013, although it has fallen modestly since then (Chart 1).
- By country, the largest decline in lending to NFCs occurred in Italy, where bank lending dynamics continue to be weak with a further fall of €3.7bn (on our own seasonal-adjustment). Credit flows also fell in Spain (-€1.7bn) and slightly in Germany (-€0.6bn). Lending to NFCs rose further in France (+€3.7bn), where data have been more positive in recent months (Chart 2). The stock of loans outstanding has contracted by 30% in Spain and by almost 8% in Italy since July 2011.
- Broad money (M3) growth remains weak, while diverging from overall credit growth to the private sector. M3 growth rose from +1.2%yoy in January to +1.3%yoy in February, as overall lending growth to the private sector edged up from -2.3%yoy to -2.2%yoy. In normal times, money and loan growth move together (given that advancing loans involves the creation of deposits); since the end of 2011, however, the series have moved in opposite directions
Lending to households vs non-fin corporations:
[14]
And while M3 did grow once again modestly, rising 1.3% fr0m a year ago, compared to the 1.2% growth in January, it is the all important private sector loan creation (red line), that continues to defy every attempt by Draghi to boost this all important inflationary stimulus, without which Europe will continue to sink into ever more "evil" deflation.
This is just how incompetent the ECB really is in Reuters' words [15]:
The ECB has cut interest rates close to zero, pumped extra liquidity into the banking system and announced a fresh government bond purchase programme, but the measures have so far not managed to unclog lending to the real economy. The ECB's health check of the euro zone's largest banks' balance sheets before it takes over banking supervision in November is exacerbating the situation, with lenders reluctant to take on more risk and trying to slim their loan books instead.
As we have been saying for about a year now, things will only get worse, the longer the failed ZIRP program continues, which instead of allocating credit into the economy, forces speculators to rush for returns by dumping it all into capital markets (for a confirmation look nowhere further than the epic disconnect between Europe's stock bourses and its crashing economies).
Bank balance sheets declined by around 20 percentage points of gross domestic product last year, partly in anticipation of the health check, ECB President Mario Draghi said on Tuesday.
And more is to come this year.
UniCredit, for example, posted a record 14 billion-euro loss this month due to huge writedowns on bad loans and past acquisitions as it moved to clean up its balance sheet.
The ECB welcomed the move and encouraged other banks to not to wait with any corrective measures until the review's results are released in October.
"The fall in bank lending to businesses has clearly reflected an ongoing combination of limited supply and muted demand," said Howard Archer, economist at IHS Global Insight.
Whether it is a supply or demand issue is unknown, and irrelevant: what is clear is that corporate borrowing in the euro zone overall declined by 2.9 percent compared with a 3.0 percent decline on the year in the previous month. Until this number posts an increase one can't even talk of a recovery.
Finally, the break down by nation:
The biggest decline was in Slovenia, where lending to companies fell 15.8 percent, the sharpest decline on record.
Bank lending to Spanish firms fell at an annual pace of 9.5 percent in February, improving from a decline of 10.7 percent a month earlier.
Bank lending to Irish firms fell at an annual pace of 6.5 percent in February, the strongest decline since October 2011.
Only five euro zone countries saw corporate lending grow in February, with France the only large economy among them. Finland showed the biggest rate of increase, at 6.1 percent.
And in chart format:
[16]
And now, we look forward to Mario Draghi once again repeating the same old song and dance about being ready to do "whatever it takes" to defeat deflation, and sending the EUR plunging, while doing once again nothing.