Euro-area lenders took €233.5bn in free long-term loans from the European Central Bank as they prepare for the potential end of extraordinary stimulus.
The take-up in the last of the ECB’s Targeted Longer-Term Refinancing Operations (TLTROs) – four-year loans at a rate that starts at zero and could go lower – compares with a median estimate of €110bn in a Bloomberg survey, with predictions ranging from €30bn to €750bn euros.
The net amount after repayment of €16.7bn from earlier TLTROs is the largest since the programme started.
The operation gives the ECB an insight into lenders’ expectations about the path toward the end of a stimulus spree that also includes negative rates and €2.28 trillion in asset purchases.
While current guidance foresees a significant pause between the end of the ECB’s bond-buying programme – predicted in an earlier Bloomberg survey to be around mid-2018 – and the first rate increase, some ECB policymakers have said that gap could be shortened or the sequence reversed.
Yesterday, ECB president Mario Draghi signalled time is running out for banks to get their house in order.
“The banking sector’s capacity to fully support the euro area’s recovery is curtailed by its low profitability,” Mr Draghi said in the annual report for the ECB’s bank-supervision arm.
“Overcapacities, inefficiencies and legacy assets contribute to banks’ low profitability. It is up to the banks themselves to find appropriate answers to these challenges. And for the sake of a strong recovery in the euro area, they must do so quickly.”
Italian lenders were among the 474 bidders that chose to lock-in cheap funding before it’s too late. UniCredit, the nation’s biggest bank, borrowed €24.4bn. Intesa Sanpaolo took about €12bn, BPER Banca €4.1bn, Banco BPM €3.1bn, and Mediobanca €1.5bn. Unione di Banche Italiane, Credito Valtellinese and Banca Carige took up €2.5bn, €1bn and €500m respectively.
The ECB started its first series of TLTROs in September 2014, with a second series on more lenient terms getting under way last year. The 12 operations have delivered €834bn to lenders, excluding a rollover of funds from TLTRO-1 to TLTRO-2 in June last year.
“Demand for this operation was always going to be higher than the prior TLTRO-2s as it is the final opportunity to secure cheap liquidity over four years,” Alan McQuaid, an economist at Merrion Capital in Dublin, said before the allotment.
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