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Banks take up higher-than-expected 45.3b euros in cheap ECB loans

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European lenders took up almost twice the amount of cheap loans that analysts had predicted in a second round of European Central Bank refinancing, according to data released Thursday.

[FRANKFURT] European lenders took up almost twice the amount of cheap loans that analysts had predicted in a second round of European Central Bank refinancing, according to data released Thursday.

In a move suggesting banks may be increasingly willing to lend to households and businesses, the ECB announced that it had agreed to lend 45.3 billion euros (S$68.23 billion) to 249 banks in the eurozone under the so-called TLTRO 2 programme.

Under the programme, financial institutions are expected to quickly lend the funds to customers to provide a much needed boost to economic growth.

The amount was lower than the first round in June, which came just before Britain voted to leave the European Union and lenders were hesitant about the economic outlook.

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However, it was significantly higher than analysts' forecasts. ING Diba bank had predicted a figure of 25 billion euros.

Subtracting some of the loans, used by banks to immediately pay back previous debts to the central bank, the ECB loaned out a net amount of around 34 billion euros.

That was a slight increase over the net amount in the first round of TLTRO 2 lending in June.

While June saw the ECB issue almost 400 billion euros in loans to 514 banks, the net impact on the financial system was smaller as banks used around 370 billion of that cash to pay back old debts - leaving a net figure of 31.42 billion flowing outwards.

As most banks aren't facing a lack of liquidity at the moment, increased demand for the TLTRO loans "may be a sign they are more willing to lend," Capital Economics analyst Jennifer McKeown told AFP.

But given political uncertainties and ongoing high unemployment across much of the eurozone, "I don't think this is the start of a massive increase in lending," she said.

"There's a lot of political uncertainty in Europe that's going to limit consumer confidence and keep a lid on demand for loans."

Part of the ECB's toolbox of measures to stimulate the eurozone economy and push up growth and interest rates, TLTRO 2 loans are repayable over four years and offer fixed interest rates of zero percent.

The amount banks can borrow under TLTRO is linked to the amount they lend to businesses and households, as the programme is designed to get money circulating in the real economy.

Interest rates on the ECB's loans to the banks become more attractive the more they in turn lend out to clients, and can dip as low as the central bank's deposit rate of -0.4 per cent - meaning that the ECB would be paying them to take its cash.

The ECB plans two more quarterly rounds of TLTRO 2 loans up to March 2017.

AFP

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