Take-up on first ECB's TLTROs much lower than expected
The first round of the European Central Bank’s (ECB) new four-year loan package was launched on Thursday, as it attempts to revive the stagnant Eurozone economy.
According to ECB plans, the funds - denominated targeted long-term refinancing options (TLTROs) - will be tied to lending mostly to smaller firms that form the Eurozone’s economic backbone.
Between now and December, banks will have the option to borrow up to €400bn (£316.3bn) at tenders, albeit at slightly higher rates than ECB’s regular funding operations, and have the chance to take on additional loans until mid-2016.
Some 255 banks participated, less than half the number which participated in the first three-year LTRO back in late 2011, securing €82.6bn in loans, well below the consensus, which ranged between €174bn and €133bn, according to estimates published by Bloomberg and Reuters respectively.
“The low take-up is a blow to the ECB's goal (revealed in the 4 September press conference) of taking the balance sheet back ‘towards the dimensions it used to have at the beginning of 2012,’" analysts at BNP Paribas said in a note.
“The ECB is presumably going to stress that it remains confident that demand in December will be higher as some of the factors cited above should be more conducive to a higher take up second time around.”
A number of ECB officials have already flagged the take up in December as the better benchmark for various reasons, including the completion of the comprehensive assessment of bank balance sheets, including ECB Vice President Vitor Constancio.
“Only after the second tranche of the [TLTRO] in December will we then gauge the impact, because by then the comprehensive assessment [of banks] will be completed and banks will know what is their situation,” said Constancio.
Holger Schmieding, chief analyst at Berenberg, described the outcome of the first cash injection as a “disappointing result for the ECB”, adding that, even in the event of a bigger take-up in December, the central bank might struggle to invest the €400bn it envisaged.
The result shows that a lack of liquidity is not among the top problems in the Eurozone. Simply offering more liquidity at more generous terms to banks awash in cash will not make a huge difference to the outlook for growth and inflation,” said Schmieding.
“Instead, the key issues in the Eurozone are a lack of demand for credit, exacerbated by the effect of Putin’s war on business confidence and hence business investment, and the uncertainty in the banking sector ahead of the results of the stress test and asset-quality review exercise.”