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Ultra-cheap eurozone loans hit a snag

Feb 22 2013 18:30

Frankfurt - Eurozone banks do not seem ready to repay as much as expected of the ultra-cheap three-year loans made available to them by the European Central Bank last year, official data showed on Friday.

The ECB announced that 356 eurozone banks have signalled their intention to repay early €61.1bn ($80.5bn) of a second batch of special long-term refinancing operations or LTROs, launched last year to avert a looming credit crunch in the single currency area.

That is much lower than the €130bn some analysts had been expecting.

The LTROs are injections of liquidity into the banking system with ultra-long maturities of three years.

They were launched in two batches - €468.19bn in December 2011 and €529.5bn in February 2012.

At the time, they were widely credited with pulling Europe back from the brink of a dangerous credit crunch.

Both rounds of LTRO included provisions to allow early repayment after one year, if banks so chose.

The first repayment window opened on January 30, when 278 banks repaid €137bn.

And the second window opens on February 27.

After that, repayments can continue on a weekly basis, depending on demand.

Total repayments so far amount to €212.3bn or 21% of the combined total of €1.02 trillion in LTROs.

ECB chief Mario Draghi has argued that the fact that eurozone banks are ready to repay early such a large chunk of their emergency loans "reflects the improvement in financial market confidence."

But analysts suggested the lower-than-expected repayments for the second batch is a signal that banks are still not ready to rely solely on the normal funding markets, especially with the Italian elections looming this weekend.

"The uncertainty ahead of the general political elections in Italy could have led some banks that had decided to exit to postpone their repayment," said Giuseppe Maraffino and Laurent Fransolet of Barclays Research.

"Should this have been the case, the repayment in the following weeks could be higher than at the previous three paybacks in the weeks following the January 30 payback, which averaged €4.1bn," the analysts said.

The ECB did not provide a national breakdown of banks that are repaying and few banks have made public their repayment plans.

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european union  |  eurozone  |  banks  |  loans



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