Lenders in Europe Will Need More Central Bank Cash, Fitch Says

European banks will need a fresh injection of long-term central bank funding as their outlook deteriorates, Fitch Ratings said, citing the results of its quarterly investor survey.

A record 53 percent respondents said they expect credit conditions for banks to worsen, up from 45 percent in the previous quarter, according to Fitch. Eighty-two percent of respondents said that within two years banks will need another long-term refinancing operation similar to those in which the European Central Bank pumped more than 1 trillion euros ($1.23 trillion) into the financial system, Fitch said.

“Many banks in southern Europe have become dependent on ECB facilities as their only real source of wholesale funding,” Fitch analysts led by Monica Insoll and James Longsdon in London said in a statement. “If they are unable to de-lever in time, they will likely need some assistance to be able to pay back their LTRO take up.”

The ECB’s two refinancing operations made new cash available to Europe’s banks to help them refinance maturing debt and push down government bond yields as they invested in the securities. The LTROs, which mature in three years, have tightened the links between banks and their sovereigns and leave unanswered the question of how borrowers will repay the loans at maturity.

About 50 percent of those expecting a new LTRO predict it will take place in 2013 or 2014, before the current LTROs run out, while 33 percent say it will come before year-end, Fitch said. Seven percent said it will take place sooner, while 18 percent said another is unlikely, according to Fitch.

The survey was conducted between July 2 and Aug. 2 and represents the views of managers of an estimated $7.2 trillion of fixed income assets, Fitch said. Fitch will publish the full survey results in a report mid-August.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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