Lending to the private sector in the euro area, which has practically dried up in recent months, contracted again last month as austerity hit companies' and households' budgets, data showed Thursday.
After already shrinking by 0.6 per cent in August, eurozone bank loans to the private sector declined again by 0.8 per cent in September compared with the same period last year, the European Central Bank calculated in regular monthly data.
President Mario Draghi has long argued that the low level of lending activity is not due to tighter lending conditions on the part of banks but more a reflection of weak demand for loans as households and companies are reluctant to take on debt in the current crisis.
That is why the ECB's decision to pump more than 1.0 trillion euros ($1.3 trillion) in ultra-cheap long-term loans into the banking system at the beginning of the year has not been as effective as Draghi had hoped.
Analysts saw the further contraction in lending last month as an indication that the eurozone is in recession.
"The ongoing fall in loans to non-financial companies is disappointing news and consistent with our view that the eurozone economy is still in a mild recession," said Marie Diron of Ernst & Young Eurozone Forecast.
More information would come with next week's release of the ECB's regular bank lending survey, she said.
But much of the fall in loans was probably accounted for by companies preferring to preserve cash or repay debt rather than banks tightening credit conditions even further.
"It suggests that businesses are not seeing as many reasons to feel more upbeat after the ECB's announcement of its OMT programme as financial markets," Diron argued, referring to the central bank's latest programme to buy up the sovereign bonds of debt-wracked countries.
"The outlook for business is pretty bleak, with fiscal tightening hitting households' and companies' budgets, a need to adjust staff numbers down to restore productivity and little prospects of gaining much from sales abroad since economic growth across the whole of the eurozone is either slowing or shrinking," Diron said.
IHS Global Insight economist Howard Archer also said the fall in lending "undoubtedly stems from weak demand conditions from the non-financial private sector.
"This has been reflected in survey evidence showing that households and firms are reluctant to take on new debt amid weak economic activity levels and high uncertainty regarding the economic outlook."
But tight credit conditions are also handicapping eurozone growth prospects, he argued.
"The concern is that a number of companies who do want to borrow -- whether it be to support their operations, lift investment, explore new markets -- and are in decent shape are finding it hard to."
The ECB also published eurozone money supply data, which suggest the money supply -- a key guide to future inflation -- is growing less strongly than expected.
Growth in the M3 indicator, which measures the amount of money in circulation and deposited with banks, slowed to an annual 2.7 per cent in September from 2.8 per cent in August.
Analysts surveyed by Dow Jones Newswires had expected a pick-up in growth to 3.1 per cent.
The ECB regards the M3 figure as a key guide to inflation pressures and uses it to set interest rates accordingly.
Some economists have suggested the bank might cut interest rates some time soon and subdued inflationary pressure makes this more likely.