By David Barwick – FRANKFURT (Econostream) – Euro area firms reported a further tightening in bank lending conditions in the third quarter, with higher borrowing costs accompanied by a decline in loan availability and expectations that access to external financing will deteriorate further, the European Central Bank said Monday.

A net 46% of firms reported higher bank interest rates, up from 42% in the previous quarter, the ECB said in its latest Survey on the Access to Finance of Enterprises. Large firms reported increases more frequently, at a net 55%, compared with 38% of small and medium-sized enterprises.

The ECB said firms “widely reported a further net tightening in bank loan interest rates,” while a net 27% reported higher charges, fees and commissions and a net 14% reported stricter collateral requirements.

Bank loan availability deteriorated to a net -5% from -1% in the second quarter, while a net 2% of firms reported lower needs for loans, reversing the net 2% increase in the previous quarter.

The resulting bank loan financing gap remained positive at a net 2%, compared with 3% previously. A net 8% of firms expected bank loan availability to deteriorate over the following three months, after a net 2% in the previous survey had expected an improvement.

The ECB said firms continued to see the general economic outlook as “the main factor constraining the availability of external financing,” with a net 31% reporting a negative impact, up from 29% in the previous quarter.

Firms meanwhile reported continued cost pressures, with a net 71% citing higher material and energy costs and 57% higher labor costs. A net 17% reported an increase in interest expenses.

Turnover continued to increase, but at a slower pace, with a net 4% of firms reporting an increase compared with 9% previously. A net 21% reported declining profits, up from 16%, while fixed investment improved, with a net 8% reporting an increase compared with 6% in the second quarter.

The ECB cautioned against drawing conclusions from a sharp rise in reported inflation and price expectations across the full survey sample because first-time respondents accounted for the majority of firms surveyed.

The substantial change in the sample “makes it challenging to interpret the responses to the numerical questions at this stage,” the ECB said.

Among firms that participated in both the second- and third-quarter surveys, median one-year inflation expectations remained at 3.0%, while the three-year median edged up to 3.2% from 3.1% and the five-year median to 3.1% from 3.0%.

By contrast, in the full third-quarter sample, median one-year inflation expectations rose to 4.0% from 3.0%, while three- and five-year expectations both climbed to 5.2%. Among repeat respondents, expected selling-price increases rose to an average 3.6% from 2.5%, compared with 7.1% for the full sample.

The survey was conducted between August 26 and October 2 and covered 12,822 euro area enterprises, 93% of them with fewer than 250 employees.