ECB expects credit supply to recover soon if all goes to plan -Coeure

DUBROVNIK, Croatia, June 13 Fri Jun 13, 2014 11:55am EDT

DUBROVNIK, Croatia, June 13 (Reuters) - Credit supply in the euro zone could soon recover from current low levels if lenders react as the European Central Bank expects to measures it announced last week, ECB Executive Board member Benoit Coeure said on Friday.

The ECB cut all its main interest rates - taking the rate on overnight deposits below zero - and launched a package of policies aimed at encouraging banks to lend to companies, to spur growth in the bloc and keep deflationary risks at bay.

Speaking at an economic conference in Dubrovnik, Coeure said sufficient credit supply was crucial for the euro zone recovery.

"We want this recovery to be sustained, we want growth to run forward. We need credit to be extended to the economy and we are not yet there," Coeure said.

"If credit develops as we expect it to develop, we will soon face the bottom ... on the supply side of the credit market."

As part of its stimulus package, the ECB will offer banks ultra-cheap four-year loans conditional on their lending, for instance to the small and medium-sized firms (SMEs) that are the 18-country euro zone's economic backbone.

The ECB is also preparing for possible purchases of asset-backed securities, which it sees as a way to facilitate funding particularly for SMEs, which are often not big enough to raise investment funds directly on capital markets.

While the ECB could for example buy the top tranches of these assets, it is still not clear whether there would be enough appetite from investors to buy the riskier tranches and who these investors would be.

Coeure emphasised on Friday that the ECB would not step into the market on its own.

His colleague on the ECB Executive Board, Yves Mersch, said earlier this week the ECB may buy "simple and transparent" ABS. (Reporting by Marja Novak; Writing by Eva Taylor; Editing by Catherine Evans and Alexandra Hudson)

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