Tuesday 12 December 2017

Banks show strain with uptake of ECB loans

Laura Noonan

THE acute strain in the eurozone financial system was evident once more yesterday as banks' borrowing of cheap central bank money came in almost 50pc above analysts' expectations.

Some 270 banks drew down €149.5m in three-month money from the European Central Bank (ECB) yesterday, substantially higher than the €105m expected by analysts surveyed by Reuters.

The ECB is trying to solve banks' liquidity problems by offering unlimited money at a set interest rate -- provided banks can pledge high-quality assets as collateral for the loans.

High levels of ECB borrowings typically indicates stress in the system since banks turn to the ECB when they fear they won't be able to get funding in the marketplace.

The figures aren't broken down by country, but Irish banks have traditionally been among the bigger borrowers of ECB money, along with banks from Portugal and Greece.

Dublin market sources last night said that it was unlikely that Irish banks' had significantly raised their borrowings from the ECB in yesterday's rounds.


"Irish banks probably rolled over the facilities they already had, but the feeling is that banks [here] don't have that much collateral left for new ECB borrowings," said one analyst.

"The figures do show that things remain very tough in finical markets generally ."

Concerns about Irish banks running short of ECB-eligible collateral are being triggered by the institutions' increasing reliance on funds from the Central Bank of Ireland (CBI).

The CBI, which has more lax collateral rules than those applied in Frankfurt, had almost €44bn in loans to Irish banks out at the end of November, up €9bn on the October figure.

Irish banks also owe another €136bn to the ECB, making them the biggest users of the ECB's liquidity facility. They're likely to have used yesterday's auction to fund the repayment of a significant whack of these loans over the coming days.

Banks across Europe will have to pay back a total of €96.9bn in 12-month ECB loans today and another €38.2bn of three-month ECB loans tomorrow.

"Banks' liquidity needs are still pretty high and they remain dependent on the ECB," said Ulf Kraus, a fixed-income strategist at Helaba Trust GmbH in Frankfurt. (Additional reporting: Reuters, Bloom- berg)

Irish Independent

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