Bank borrowing in new ECB loans program disappoints


FRANKFURT: The European Central Bank pumped more liquidity into the financial system Thursday in a bid to boost the economy via private-sector loans but analysts said uptake by banks was disappointing.

The Frankfurt-based central bank said it had leant 82.6 billion euros ($106.3 billion) to 255 banks under its new lending programme aimed at boosting the economy via private-sector loans.

“The programme is designed to enhance the functioning of the monetary policy transmission mechanism by supporting bank lending to the real economy,” it said in a statement.

The amount borrowed by eurozone banks comes in below forecasts by analysts who had pencilled in an uptake of at least 100 billion euros for the Targeted Long-Term Refinancing Operation (TLTRO).

In June the ECB unveiled plans to pump more liquidity into the financial system later in the year using the TLTRO.

The measures are different from the steps the ECB took at the end of 2011 and the beginning of 2012 to boost liquidity.

At that time, banks were deemed to be not lending enough to the small- and medium-sized companies that form the backbone of the eurozone economy.

This time, the ECB is instead targeting loans to encourage banks to lend to households and non-financial corporations.

Banks among the 18 countries that share the euro have the possibility this year to borrow from a pot of around 400 billion euros—up to seven percent of their outstanding loans to businesses and households—in two rounds of lending.

The second is scheduled for December 11.

The loans under the TLTRO, which runs until September 2018, are offered at a fixed rate of 0.15 percent, slightly above the ECB’s key interest rate which is currently at a new all-time low of 0.05 percent.

Banks unable to prove they have increased lending to firms and households will have to repay the loans early after two years.

Six further TLTRO rounds will follow between March 2015 and June 2016 but under different conditions.

‘Disappointing’ result
The ECB’s decision-making governing council voted earlier this month to cut the bank’s key interest rates to new all-time lows to prevent the rot of deflation setting in the faltering eurozone economy.

It also promised to launch a programme of asset purchases to inject cash into the economy.

But ECB chief Mario Draghi has said that eurozone governments must also get their economies in order if the euro area is to recover from its long crisis, with a mix involving monetary, fiscal and structural policies.

Jennifer McKeown, an economist at Capital Economics, said the TLTRO uptake “puts a major dent in the policy’s chance of success” and puts the ECB under more pressure to take “bolder action.”

“The ECB’s stated aim is to cause a sharp rise in bank lending to the private sector,” she said in an analyst’s note.

“But the fact that banks have borrowed relatively little suggests that they have little intention of increasing their lending, either because of their own risk aversion, a lack of demand for loans, or most likely both.”

Describing it as “a disappointing result,” Berenberg’s Holger Schmieding said: “Simply offering more liquidity at more generous terms to banks awash in cash will not make a huge difference to the outlook for growth and inflation.”

He said a lack of demand for credit, aggravated by the effect of the Ukraine crisis on business confidence, were among the key problems in the eurozone.

And Martin van Vliet of ING said the lower-than-expected uptake would “raise further doubts about the feasibility of the ECB’s goal to increase its balance sheet by around 1 trillion euros”.

However he added he did not believe the ECB would be “highly alarmed” by the outcome and that he saw a possibly stronger demand for the December TLTRO.



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