Tuesday 25 October 2016

Banks shunning cheap financing from ECB

Balazs Koranyi

Published 25/06/2016 | 02:30

Mario Draghi. Photo: Reuters
Mario Draghi. Photo: Reuters

The European Central Bank's allotted €399.3bn in its initial round of super-cheap loans yesterday, at the lower end of expectations and confirming that Eurozone banks are not in great need of additional financing.

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Unveiled in March as a potent tool to aid the bloc's modest credit recovery, the four-year Targeted Long-Term Financing Operations (TLTRO II) aim to lower corporate borrowing costs to induce spending and ultimately revive inflation.

Offered initially at a 0pc interest rate, banks could be paid up to 0.4pc of what they borrow by the ECB if they meet targets for lending out cash to the real economy.

Struggling with ultra-low inflation, the ECB will offer the new loans every three months.

It has also cut its deposit rate deep into negative territory and is buying €80bn of assets per month with the aim of getting consumer price growth back to its target of close to 2pc.

But surveys suggested that funding is a relatively low concern for banks, who are more worried about finding customers with viable investment plans and healthy market prospects.

Banks repaid €367.86bn of loans taken out in the ECB's first TLTRO over the past two years, all of which was expected to be rolled into the new TLTRO facility.

Including the rollover, the €399bn take up from 514 banks is below the €435bn forecast in a Reuters poll.

The net new borrowing of €31bn is unlikely to surprise the ECB: sources familiar with the process had said it was bracing for take up in the tens of billions, not higher. (Reuters)

Irish Independent

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