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Euro banks less reliant on crisis cash

Monday, February 18 12:48:27

German banks' use of ECB crisis funding dropped by a third in January from the previous month, a further sign that banks in the heart of the euro zone are returning to money markets after the credit squeeze.

Banks in countries on the periphery of the 17-member bloc still rely on central bank lending, which, while at a record-low interest rate of 0.75 percent, is above market rates. The divergence complicates the ECB's interest rate-setting plans.

The Bundesbank data released on Monday showed that German banks owed the central bank 49.5 billion euros at end-January, 23.6 billion less than a month earlier, suggesting they took advantage of the first opportunity to pay back the 3-year loans to the ECB, known as LTROs, on Jan. 30.

Most - 20.6 billion euros - of the fall came in German banks' use of longer-term facilities, which cover anything from one month to three years.

The ECB gave banks the ultra-long term loans in two instalments roughly a year ago, with euro zone lenders taking more than a trillion euros in cheap cash.

In the first of the twin loans, offered in December 2011, banks took 489 billion euros. In the first opportunity to pay back those loans early, banks returned 137.2 billion euros to the Eurosystem of euro zone central banks on Jan. 30.

Banks with market access can get overnight funds at 0.06 percent, while the interest rate for 3-month loans is 0.223 percent.

ECB President Mario Draghi said earlier this month that the financial market conditions had improved significantly and that the early repayments were "a sign of confidence".

"Many banks had accessed (3-year) LTRO for precautionary reasons because they were, a year ago, uncertain about the liquidity situation - about the funding prospects. And now they are less uncertain, than they were a year ago. So, that is also a positive sign," Draghi said in a post-rate decision news conference. (C ) Reuters