ECB Loans Banks $8.2 Billion as New Long-Term Plan Readied

  • TLTRO-I takeup lower than 18.3 billion euros borrowed in Dec.
  • ECB to offer new four-year TLTRO-II program from June

The European Central Bank handed 7.3 billion euros ($8.2 billion) to euro-area banks in the seventh round of a program aimed at boosting lending to companies and consumers, shortly before it starts a new and more generous plan.

The take-up in the targeted longer-term refinancing operation compares with 18.3 billion euros the ECB lent in a similar operation in December and 15.5 billion euros handed out in September. Banks have now taken a total of 426 billion euros since the first offer in 2014.

The ECB, battling to stave off the threat of euro-area deflation, is relying on a package of negative interest rates, bond purchases and TLTROs to push down market rates and spur banks to lend. A so-called TLTRO-II will start in June that could see financial institutions being paid to take central-bank cash and lend it to the real economy.

“The real show will be the new TLTRO,” said Frederik Ducrozet, senior economist for Europe at Pictet Wealth Management in Geneva. “This one is just a free option for some peripheral banks to roll over at zero cost to June.”

Zero Rate

ECB President Mario Draghi this month expanded a stimulus program to prevent the 19-nation euro area’s lackluster economy from slipping into a deflationary spiral of falling consumer prices and wages. That package included a surprise cut in the main refinancing rate, which reduced the cost of the TLTRO funds to zero from 0.05 percent.

He said the ECB had “a pretty successful experience” with the program as lending is growing amid a steady, if fragile, economic recovery. Adjusted loans to non-financial corporations in the region rose 0.6 percent in January from a year earlier, and loans to households climbed 1.4 percent.

Under the current TLTRO, banks can borrow as much as three times their net lending to companies and households, excluding mortgages, over a set period. All the loans mature in September 2018, though the ECB will also allow voluntary repayment in June this year, giving banks the opportunity to roll over their loans into the new program. The final operation in June will still be carried out as scheduled.

TLTRO-II will start in June and run quarterly through March 2017, with all loans holding a four-year maturity and the possibility of early repayment. Unlike the first program, banks that fail to reach lending benchmarks won’t face mandatory early repayment. Funds will initially be offered at the main refinancing rate. That can be cut to as low as the deposit rate, currently minus 0.4 percent, if banks boost their net lending by a certain amount.

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