Bank borrowing in ECB loan programme beats expectations

(FRANKFURT) - The European Central Bank pumped more than twice the expected liquidity into the financial system Thursday via private-sector loans, data showed.

The Frankfurt-based central bank said 143 banks had borrowed 97.8 billion euros ($104 billion) under the third round of a lending programme aimed at boosting the moribund eurozone economy and halting a stubborn slowing of inflation.

The amount borrowed was double the forecasts of analysts who had pencilled in only a very modest uptake of around 40 billion euros under the Targeted Long-Term Refinancing Operations (TLTRO) programme.

The ECB designed the TLTRO programme as a way to persuade banks to lend money to small and medium-sized businesses and get the eurozone economy back on its feet.

The programme is a step up from similar measures taken by the ECB at the end of 2011 and the beginning of 2012 to boost liquidity.

At that time, banks were also 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 targeting loans to encourage banks to lend the money on.

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

The loans under the TLTRO are offered at a fixed rate of 0.15 percent, slightly above the ECB's key interest rate which is currently at 0.05 percent.

Nevertheless, the success of two previous sets of TLTRO lending -- in September and December 2014 -- has been relatively limited, with around 212 billion euros taken up in loans.

A further five TLTRO rounds of lending are scheduled until 2016.

The better-than-expected uptake this time round "does not necessarily mean that lending will now start to rise," said Capital Economics economist Jennifer McKeown.

"It remains clear that the ECB's earlier hopes (regarding the TLTROs) ... were far too optimistic," she said.

It now remains to be seen whether the ECB's newest anti-deflation weapon, its bond purchase programme known as quantitative easing or QE, is more successful in kick-starting the economy, analysts said.

QE's effectiveness "will be limited by the weakness of the bank lending channel and already rock bottom interest rates," McKeown warned.