Banks took more than twice the expected amount of long-term loans from the European Central Bank (ECB) yesterday, loading up on the cheap credit in a fresh sign that a Eurozone recovery is spurring lending.
Banks took €97.8bn in the so-called targeted longer-term refinancing operations (TLTROs), which are tied to lending to the mostly smaller firms that are the Eurozone's backbone. A Reuters poll had pointed to take-up of €40bn.
The ECB is offering banks the loans as part of a cocktail of measures aimed at pumping around €1 trillion into the Eurozone economy, in a bid to get inflation from below zero towards its target of just under 2pc.
The ECB said there were 143 bidders for this week's TLTROs. Leading Italian banks had been expected to take up a large chunk of the loans.
James Knightley, an economist with ING, said the strong take-up showed that banks were increasingly willing to lend.
"Although we have not yet seen a significant pick-up in lending, we have seen an improvement of credit availability and demand," he said.
"The data suggests there is a growing appetite to lend. People are also willing to buy, and willing to buy on credit."
Banks took €82.6bn and €129.8bn of the four-year TLTRO loans in September and December respectively, just over half the total cash on offer last year. The ECB made its latest batch of TLTROs more attractive by removing a 10 basis point premium over its main interest rate of 0.05pc that was applied to the first two tranches.
Yesterday's bumper loan take-up came after the ECB earlier this month painted an upbeat picture of the Eurozone's growth outlook as it embarks on a plan of money printing to buy sovereign bonds, a policy known as quantitative easing or QE.
The TLTRO money cannot be easily parked at the ECB and banks are supposed to lend it on or else repay the funds early.
Pointing to improving data, the ECB on March 5 lifted its growth forecast to 1.5pc for this year, from the 1pc it predicted in December. Its latest bank lending survey meanwhile pointed to increased loan demand.
Despite exceeding expectations, yesterday's TLTRO take-up leaves the ECB with much to do to achieve its goal of expanding its balance sheet by around €1 trillion. It has deployed the QE programme with the aim of meeting that target.
The Eurozone's central bank has said it will buy €60bn a month of mainly sovereign bonds until September 2016 or until inflation is pushed backed towards target.
"This was actually the first TLTRO that did not disappoint in terms of size," Nordea economists Holger Sandte and Lars Peter Lilleore said in a research note. (Reuters)