March 9, 2018 / 2:00 PM / 9 months ago

UPDATE 1-ECB's deadline lifts Italian banks' corporate lending to 6-year high

(Adds further detail on lending, incentives)

MILAN, March 9 (Reuters) - Italian banks’ loans to businesses grew at their strongest rate since December 2011 in January, as the European Central Bank prepared to check whether cheap funds it has provided reached the real economy.

In an effort to stimulate credit and growth, the ECB has offered banks interest free long-term funds, giving even a possibility for the interest rate to become negative if they lend the cash to businesses, effectively paying local banks.

The ECB measured bank lending against goals the banks had declared when borrowing the funds.

Italian bank loans to companies jumped 1.9 percent year-on-year in January, up from 0.2 percent in December, Bank of Italy data on Friday showed.

Italian banks had sharply reduced corporate lending after a deep recession saddled them with a large bad loan pile.

Lenders increased writedowns of impaired debts in the last month of the year, pushing net bad debts down to 59.3 bln euros in January from 64.1 billion euros in December, the data showed.

Before writedowns, bad loans stood at 166.5 billion euros in January, little changed from 167.4 billion euros the month before. (Reporting by Luca Trogni and Valentina Za; Editing by Elaine Hardcastle)

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