ECB Loans Win More Demand Than Estimated as Economy Picks Up

The headquarter skyscraper offices of the European Central Bank in Frankfurt, Germany

Photographer: Martin Leissl/Bloomberg

The European Central Bank handed 97.8 billion euros ($104.6 billion) to euro-area financial institutions in the third round of a program designed to boost their lending to the real economy.

The take-up signals banks are more willing to lock in long-term central-bank cash to fund loans as the economic outlook improves. Economists in a Bloomberg News survey predicted banks would take 40 billion euros, with a range of 15 billion euros to 100 billion euros. The ECB allotted a total of 212 billion euros in two similar operations last year.

The targeted loans, or TLTROs, formed the center of President Mario Draghi’s plan to expand the ECB’s balance sheet by as much as a trillion euros when they were announced in June. After disappointing demand in the first two rounds of the program, which were charged at a premium to the benchmark interest rate, the ECB provided this offer at the main refinancing rate of 0.05 percent.

“The differences between today’s TLTRO and previous operations could largely explain the large take-up,” said Frederik Ducrozet, an analyst at Credit Agricole CIB in Paris. “As a consequence, we see today’s TLTRO take-up as excellent news in terms of future bank lending that should continue to improve in a self-reinforcing way.”

Italian Takeup

Italy’s Mediobanca SpA borrowed 4.5 billion euros in the operation, and Unione di Banche Italiane SCpA took 2.9 billion euros, spokesmen for each lender said.

UniCredit SpA, Italy’s biggest bank, planned to seek as much as 7 billion euros, Chief Executive Officer Federico Ghizzoni told reporters on Wednesday in Rome. The bank hasn’t reported its actual take-up yet. Intesa Sanpaolo SpA, the country’s second-largest lender, borrowed 10 billion euros and Banco Popolare SC 5 billion euros, bringing total take-up by Italian banks to about 30 billion euros, according to Bloomberg News calculations.

Each institution’s entitlement depends on the extent to which it has changed its amount of lending to companies and households, excluding mortgages, over a set period. A further five operations are scheduled on a quarterly basis through next year, and all the loans have a maturity date of September 2018.

The contraction in euro-area bank lending since May 2012 has showed signs of ending. Loans to companies and households dropped just 0.1 percent in January from a year earlier as confidence in the region’s economic outlook strengthened.

“There’s a shimmer of hope that the economy is turning and banks are supporting that with loans,” said Stefan Bongardt, an analyst at Independent Research GmbH in Frankfurt. “In an ideal situation, the banks are lending these funds on to companies and consumers. Some banks are telling us that there is demand out there from mid-sized companies.”

Quantitative Easing

On the day of the first round of TLTROs in September, ECB Vice President Vitor Constancio said they would contribute “the bulk” of the money needed to expand the ECB’s balance sheet toward 3 trillion euros.

Draghi conceded in January that the first part of the program, together with purchases of asset-backed securities and covered bonds, wouldn’t be sufficient to reach that goal and committed to buy 1.1 trillion euros of debt, most of it sovereign bonds. Quantitative easing started on March 9, with the ECB and national central banks settling 9.8 billion euros of public-sector debt purchases in the first week.

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