February 4, 2020 / 9:15 AM / 16 days ago

ECB's new loan facility still expected to boost volumes, cut costs

FRANKFURT, Feb 4 (Reuters) - The European Central Bank’s newest bank lending facility could still cut borrowing costs and boost lending volumes, the ECB said on Tuesday, even after two disappointing tenders.

The ECB’s third targeted longer-term refinancing operation (TLTRO) was launched last year to give banks access to ultra cheap cash in the hope that they would continue to provide credit amid a global slowdown.

But banks took up only 101 billion euros in the first two tenders, much less than they repaid from a previous facility, a drop that is also consistent with the recent slowdown in corporate lending growth.

“The latest expectations of market participants for TLTRO III uptake as reported in surveys, which range between 300 billion and 560 billion euros, can be mapped to an overall funding cost relief of around 15 basis points,” the ECB said in an economic bulletin article.

“This in turn would be expected to lead to a peak reduction in lending rates of 15 basis points and a positive contribution to annual loan growth of almost 0.4 percentage points,” the ECB added.

The current TLTRO facility has five more tenders left with the next one due in mid-March. (Reporting by Balazs Koranyi; Editing by Kirsten Donovan)

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