Skip to content. | Skip to navigation

Personal tools
Sections
You are here: Home Breaking news Bank borrowing in new ECB loans programme disappoints

Bank borrowing in new ECB loans programme disappoints

11 December 2014, 15:05 CET
— filed under: , , , ,
Bank borrowing in new ECB loans programme disappoints

ECB

(FRANKFURT) - The European Central Bank pumped more liquidity into the financial system Thursday via private-sector loans but analysts said uptake by banks was disappointing and increased pressure for it to do more.

The Frankfurt-based central bank said 306 banks had borrowed 129.8 billion euros ($162 billion) under the second round of a lending programme aimed at boosting the moribund eurozone economy and halting a stubborn drop in inflation.

The amount borrowed came in below most analysts' forecasts who had pencilled in an uptake of around 150 billion euros under the Targeted Long-Term Refinancing Operations (TLTRO) programme.

ECB board member Benoit Coeure insisted that the latest uptake was "within the ECB's and market estimates and expectations" and noted a higher number of participants this time.

But analyst Nick Kounis, of ABN Amro, termed the impact of the latest lending programme that of a "peashooter rather than (a) bazooka".

Under the first round of lending in September, the ECB lent 82.6 billion euros to 255 banks, below the forecasts of analysts.

Banks among the 18 countries that share the euro had the possibility of borrowing from a pot of around 400 billion euros in the two rounds of lending in 2014.

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

The programme is a step up from similar measures the ECB took 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.

- 'Seal the deal on QE' -

Jennifer McKeown, of Capital Economics, highlighted that the total borrowed in the two rounds was only just over half of what was available.

"This is another worrying indication that banks do not intend to lend, either because of their own risk aversion or a lack of demand," she said.

Martin van Vliet, of Global Economics, said the rise in the number of bidders and takeup this time was mostly down to better timing.

Reasons for that include some banks probably having waited until after the ECB's most in-depth and stringent audit of eurozone banks in October, he said.

The ECB has an overall target of boosting the size of its balance sheet by one trillion euros.

It has already cut its interest rates to an all-time low and unveiled asset purchase programmes -- ABSs and covered bonds -- to pump liquidity into the financial system.

But analysts said the TLTRO uptake lowered the chances of the ECB achieving its aim and further increased pressure for ECB president Mario Draghi to take more radical action in the form of quantitative easing (QE).

Used by other central banks to stimulate their sluggish economies, QE is the large-scale purchase of government bonds and other securities but is contested in Europe, especially by the German central bank or Bundesbank.

Critics say that it takes the ECB outside its remit and is effectively a licence to print money to get governments out of debt.

"Low ECB loan uptake should seal the deal on QE," said McKeown.

Van Vliet said: "Today's result further shortens the odds of the ECB launching full-blown QE in the first quarter of next year."

Christian Schulz, of Berenberg bank, said it remained to be seen whether the TLTRO had its intended impact but that overall he saw reasons for optimism.

"The additional ECB funding and asset purchases should help credit supply and the expectation of gradually firming growth may help demand.

"Still, a swift rebound in credit growth remains unlikely," he said.


Document Actions