Banks to return 5.66bn euros in crisis loans to ECB next week

24 Oct, 2014

FRANKFURT: Banks will return 5.661 billion euros in crisis loans to the European Central Bank next week after the central bank started offering lenders new four-year loans at cheap rates.

The Oct. 29 repayment is slightly lower than the 5.8 billion euros banks repaid this week but more than the 4.5 billion euros money market traders polled by Reuters had expected.

Banks are returning funds they took from the ECB in late 2011 and early 2012 to ride out a funding strain at the height of the debt crisis. Last month, the ECB started offering them new long-term loans.

Banks still hold about 300 billion euros of the old crisis loans, and lenders are expected to move them into the new ECB loan facility before they mature in January and February.

For now though, it is still cheaper for banks to rely on the ECB's regular refinancing operations, where they can fund themselves at record low rates of 0.05 percent. They have to pay an additional 10 basis points for the new four-year loans.

As a result, the ECB's first offer of the new loans, known as TLTROs, fell flat last month, with banks taking just 82.6 billion euros, less than expected.

They can potentially borrow up to 400 billion euros in September and December offers combined.

On Friday, the ECB said three banks would repay 300 million euros from the first LTRO on Oct. 29 and a further nine banks would pay back a total 5.36 billion euros from the second LTRO.

Copyright Reuters, 2014

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