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Banks to repay E20bn ECB loans early

Friday, December 20 12:31:40

Banks will return E20.7 billion of crisis loans early to the European Central Bank next week, the ECB said today, much more than forecast by traders in a Reuters poll as lenders get into shape for an upcoming balance sheet review.

This was the last chance this year for a voluntary payback of the 3-year loans and banks decided to use the chance to return more money than expected to the 17-country bloc's central bank.

Money market traders in the Reuters poll had expected 12 billion euros to be paid back. The amount was close to the 22.7 billion euros announced a week ago and the second highest since February.

The ECB will take a thorough look at the euro zone's top lenders' books before it takes up responsibility as their supervisor from November next year. Banks have already started to clean up their balance sheets in anticipation of such tests.

The pace with which banks are returning the 3-year loans they took from the ECB in late 2011 and early 2012 has picked up over recent weeks. The loans mature in early 2015.

By repaying the ECB's crisis funds early, banks are further reducing the level of excess liquidity - cash beyond what lenders need to cover their day-to-day operations - that is flushing around the banking sector.

Excess liquidity has, however, inched up this week, as the ECB failed to fully offset its bond buys in a sterilisation operation.

The ECB is monitoring money-market conditions closely as higher bank-to-bank borrowing costs could undermine the euro zone's patchy recovery. (Reuters)