The credit market squeeze helped to drive growth in euro zone corporate borrowing to a record high in August, figures showed on Thursday, as some firms found that their usual funding channels had dried up.
Analysts said the strong demand for loans was a reassuring sign that the economy remains sound despite the market upheavals, although lending could fade in the next few months if banks tighten their borrowing standards.
Strong demand for funds has pushed up rates at European Central Bank liquidity auctions in the last 6 weeks. On Wednesday the ECB lent out 3.9 billion euros at its premium rate of 5.0%, the most that has been borrowed using its loan facility in almost three years.
Releasing money and credit figures for last month, the ECB said annual growth in corporate lending picked up to 14.2% in August from 13.6% in July, the highest level since records began in 2000.
However, fears of a safe haven effect driving liquidity supply failed to materialise, although M3 money supply growth remained close to record highs as investors held on to funds in short-term bank accounts.
The figures give the first indication of how lending to euro zone businesses and households has been affected by the squeeze on credit markets, which pushed money market rates to their highest levels in six years in mid-August.
Proof of Confidence
"Some firms may have been forced to borrow from banks instead of going to financial markets," Lehman Bros economist Laurent Bilke said.
But economists said the ECB could take comfort from the fact that the corporate sector was still confident enough to borrow.
"Even in August, in the midst of the market turmoil, the corporate borrowing bonanza was still up and running," said ING Bank analyst Martin van Vliet.
Total private sector lending growth accelerated to 11.2% in August from 11.0%, above analysts' expectations but below last year's peak of 11.5%.
Lending to households was stable at 7%. Variable rate mortgages, many of which are linked to money market rates, could become more expensive if the market tensions persists.
The ECB and some economists had warned that there could be a spike in money supply in August as investor nervousness prompted a rush into safe, liquid investments such as bank deposits.
But annual M3 growth, a broad gauge of how much cash is readily available to spend, eased slightly to 11.6% from July's record 11.7%.