ECB Sees Surprise Jump In Banks' Demand For Cheap Loans

ECB sees surprise jump in banks' demand for cheap loans

FRANKFURT, (Pakistan Point News - APP -22nd Sep,2016) - European banks took up almost twice the amount of cheap loans analysts had predicted in a second round of European Central Bank refinancing, data showed Thursday, which could signal good news for businesses and households in need of credit. The ECB said it had agreed to lend 45.3 billion Euros ($51 billion) to 249 banks in the eurozone through its so-called TLTRO 2 programme, under which lenders are expected to quickly pass the funds on to customers to provide a much needed boost to economic growth.

The amount was lower than the first round in June, which came just before Britain voted to leave the European Union and lenders were hesitant about the economic outlook. However, it was significantly higher than analysts' forecasts. ING Diba bank had predicted a figure of 25 billion euros. Moreover, on a net basis -- after discounting amounts borrowed to repay old loans from the ECB -- the amount was 34 billion euros and actually increased slightly from June.

As most banks aren't facing any serious lack of liquidity at the moment, increased demand for the zero-interest-rate loans "may be a sign they are more willing to lend," Capital Economics analyst Jennifer McKeown told AFP. The ECB designed the loan conditions to make it more attractive to banks lend to ordinary businesses and households in the real economy. - 'Uncertainty' - ================= But McKeown cautioned against too optimistic a reading of the data.

Given political uncertainties and ongoing high unemployment across much of the eurozone, "I don't think this is the start of a massive increase in lending," she said. "There's a lot of political uncertainty in Europe that's going to limit consumer confidence and keep a lid on demand for loans." Part of the ECB's toolbox of measures to stimulate the eurozone economy and push up growth and interest rates, TLTRO 2 loans are repayable over four years and offer fixed interest rates of zero percent.

The amount banks can borrow under TLTRO is linked to the amount they lend to businesses and households, as the programme is designed to get money circulating. Interest rates on the ECB's loans to the banks become more attractive the more they in turn lend out to clients, and can dip as low as the central bank's deposit rate of -0.4 percent -- meaning that the ECB would be paying them to take its cash. The ECB plans two more quarterly rounds of TLTRO 2 loans up to March 2017.