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ECB launches new round of ultra-cheap loans for banks

The European Central Bank on Wednesday launched a new round of ultra-cheap loans for banks in a fresh move to kick-start sluggish credit in the single currency area. 


ECB launches new round of ultra-cheap loans for banks

Frankfurt: The European Central Bank on Wednesday launched a new round of ultra-cheap loans for banks in a fresh move to kick-start sluggish credit in the single currency area. 

The ECB said that banks could submit bids for the funds -- known as targeted long-term refinancing operations or TLTROs -- from 1:30 pm (1130 GMT) until Thursday.

The results of the tender -- the volume of bids received as well as the total loans allotted -- are to be published on Friday.

Commerzbank analysts said demand for the new set of TLTROs would provide an "important indication of the state of health of the eurozone financial sector."

A first version of the scheme -- under which European banks can borrow funds from the ECB at very cheap rates on condition they lend the money on to the private sector -- was originally launched in September 2014. 

But the ECB has decided to launch a second new round, comprising this time of four TLTROs in all, each with a maturity of four years, where banks can borrow at even more competitive rates.

The money is lent at a basic rate of zero percent, but in certain cases, the rate can sink as low as minus 0.4 percent, which effectively means that the banks receive money for borrowing from the ECB. 

These refinancing conditions are therefore "substantially more interesting" than the first series of TLTROs, said BNP Paribas analyst, Thibault Mercier.

UniCredit analyst Luca Cazzulani estimated that banks could borrow 400-450 billion euros ($451-508 billion) in the first of this new set of TLTROs ahead of the British EU referendum on Thursday, as banks steel themselves for market turbulence in case Britain votes to leave the EU. 

The banks are obliged to lend on the borrowed money to companies and businesses, as the continued weakness of credit activity is seen as one of the key factors in the still very tentative economic recovery in the 19 countries that share the euro. 

The scheme "should further ease the borrowing costs of the private sector and provide an additional impulse to credit creation," said ECB chief Mario Draghi in Brussels on Tuesday.

From Zee News

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