The Institute of International Finance (IIF) composite index for the Emerging Markets Bank Lending Conditions Survey in the second quarter of this year showed that while lending conditions in emerging markets (EM) in general have tightened, those in Emerging Europe have started to ease. That is good news for companies and the prospects for accelerated growth.

Credit markets in Emerging Europe have been something of a desert as banks are reluctant to lend and companies reluctant to borrow, but that is starting to change now.

The EM Bank Lending Composite index increased by 0.8pts in the second quarter to 49.4, which is still below the 50 no-change mark, but nevertheless still the highest reading of the index in eight quarters, IIF said in a note. And Europe is faring even better.

“By region, EM Europe and EM Asia have their indices above the 50pts threshold, suggesting easing lending conditions in these regions. While the headline index for Latin America is still in tightening territory, 2017Q2 is the highest reading of this index in over 3 years, with the expectation of easing conditions in 2017Q3. The MENA region and Sub-Saharan Africa have their headline indexes still in tightening territory,” IIF said.

Of note amongst the sub-indices both the “demands for loans” and “trade financing” were above the 50 mark at 50.4 and 53.4 respectively – the only two sub-indices that are above 50 out of five. The demand for loans in Emerging Europe is second highest to those in Asia, but Asian demand is expected to fall sharply, while that in Europe is expected to rise sharply, according to IIF. However, the contraction of the NPL, Credit Standards and overall index suggest that conditions remain tough.

“The upward tendency in the sub-index for trade finance may be an indication of the recovery in global trade, which may have had positive spill-overs in the demand for loans (EM banks reported an increase in demand after 8 straight quarters of tightening),” according to IIF.

Another interesting point to come out of the survey is the improving credit standards index for real estate in Emerging Europe, which suggests investment and demand are both stepping up and could indicate the start of the next cycle for the sector.