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ECB says euro-area banks tapping QE program to fund new loans
[FRANKFURT] The European Central Bank said its asset- buying program is spurring lending in the euro area as liquidity rises and market interest rates fall.
The central bank started buying private assets last year and expanded the program in March to include sovereign bonds and agency debt to revive inflation. In its bank-lending survey for the first quarter of 2015 published on Tuesday, the Frankfurt- based institution said the strategy is having an impact.
"Euro-area banks indicated that they have used the additional liquidity from their sales of marketable assets related to the asset-purchase program over the past six months in particular for granting loans," the ECB said. "The asset- purchase program seems to be effective in supporting lending to the euro-area economy."
ECB President Mario Draghi has said the plan to spend 60 billion euros (S$86 billion) a month through at least September 2016 will boost consumer prices and spur credit supply as yields drop and investors are pushed to take more risk. The central bank's 25-member Governing Council will hold a monetary-policy meeting in Frankfurt on Wednesday to assess its quantitative- easing strategy.
The survey showed that 28 per cent of euro-area banks used the additional liquidity in particular to grant loans to companies, 17 per cent said they used it for mortgages, and 18 per cent for consumer credit and other lending to households. Most banks said they also intend to use the extra liquidity to increase loans in those categories over the next six months.
Almost half of banks in the survey said the asset-purchase program had a positive effect on their market-financing conditions. Even so, 18 per cent said it will have a negative impact on their profitability over the next six months, largely because of a decline in net interest margins.