Fears of an emerging credit crunch in the eurozone increased on Friday as data showed a sharp slowdown in bank lending to the private sector, despite recent unprecedented injections of liquidity.
The European Central Bank calculated in regular monthly data that growth in loans to the private sector slowed substantially to just 1.0 per cent in December from 1.7 per cent in November.
Last month, in a series of special liquidity measures precisely to avert a credit crunch in the 17 countries that share the euro, the ECB launched its longest-ever liquidity operations, lending eurozone banks as much as they wanted for a period of three years at super-cheap rates.
And banks in the region queued up in their hundreds to borrow nearly half a trillion euros in the first-ever such operation.
Nevertheless, there have been concerns that banks are simply hoarding the cash, rather than lending it to businesses and households as the ECB hoped they would, and banks are parking record amounts of cash in the central bank's overnight storage facility.
In normal times, banks shy away from depositing cash at the ECB, preferring to lend any overnight surplus to other banks, where they win a higher return.
But the eurozone debt crisis has spawned a lack of trust between banks and institutions are opting to store the money at the ultra-safe ECB rather than lending it to their peers.
Analysts therefore viewed the latest loan data with some degree of concern.
Julian Callow at Barclays Capital described the slowdown in bank lending as "alarming".
"We would expect the ECB to be concerned by the data, which... take the shine off the somewhat more encouraging news published earlier this week for business confidence," he said.
"Signs of a modest credit crunch in the eurozone are amplifying," said Christian Schulz, senior economist at Berenberg Bank.
Howard Archer at IHS Global Insights agreed.
The data "will reinforce concern that credit conditions are now increasingly tightening and posing a mounting risk to already struggling eurozone economic activity," he said.
Nevertheless, it would take some time yet for the liquidity measures to feed through into the ECB data, the analyst noted.
"The moderation in loans to the private sector also likely reflects corporates becoming more cautious in their behaviour and in their investment plans in the current weakened and uncertain economic environment, and cutting back their demand for credit," he said.
"It remains to be seen to what extent the 489 billion euros ($643 billion) loaned to European banks in the three-year unlimited tender in December ultimately feeds through to support bank lending to businesses and households," the analyst said.
UniCredit economist Loredana Federico said bank lending in the eurozone "tends to lag the business cycle."
"If recent signs of improvement in financial markets and the real economy are confirmed in the coming months -- we think they will be -- the pace of weakening of credit growth should moderate as 2012 progresses."
All in all, "we remain confident that the eurozone will avoid a meaningful credit squeeze in 2012," the economist concluded.
The ECB also calculated that growth of the eurozone money supply, a key indicator of demand in the economy, slowed again in December, possibly opening up room for further interest rate cuts.
The M3 indicator rose 1.6 per cent last month, following a gain of 2.0 per cent in November.
The ECB regards the M3 figure as a key guide to inflation pressures and uses it to set interest rates accordingly.
The central bank seeks to keep eurozone inflation below but close to 2.0 per cent and it cut its benchmark interest rate by a quarter of a percentage point to 1.00 per cent in December, arguing that future inflation is likely to slow as the eurozone debt crisis puts the brakes on growth in the zone.