Core euro zone banks relying less on crisis funding

CORE CONFIDENCE

The ECB has announced a yet-to-be-activated bond-buying programme, dubbed Outright Monetary Transactions (OMT), to address the issue.

(Reporting by Sakari Suoninen, editing by Paul Carrel and Philippa Fletcher)

BelgCore euro zone banks relying less on crisis fundingian banks chopped off a quarter of their borrowing from the ECB, which went down to 29.2 billion euros at end-January from 40 billion at the end of last year.

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 January 30.

This complicates the ECBs task of setting interest rates suitable for the whole block, as its policy decisions do not get transmitted in the same form to all countries.

By Sakari Suoninen

(Reuters) – German banks use of European Central Bank 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 last years credit squeeze.

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

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 ECBs interest rate-setting plans.

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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.

The use of ECB lending also went down considerably in France and Belgium, data from their national central banks showed.

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.

In Spain, which together with Italy has been drawn deeper into the centre of the debt crisis, banks used the central bank for funds almost as much in January as a month earlier.

They took 346 billion euros from the central bank, down from 357.3 billion, but they remained the heaviest users of the ECB, with their share amounting to 34.1 percent.

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.

While the plan has calmed worst fears in the market, ECB lending data shows that national divergence still looms large.

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Banks in countries hit hardest by the debt crisis, especially in Greece and Ireland, rely on emergency liquidity assistance from their national central banks, as they lack suitable collateral to access regular ECB operations. ($1 = 0.7490 euros)

Credit: Reuters/Kai Pffenbach

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

National central bank balance sheets showed, however, that a lions share of funds paid back came from core countries of Germany, France and Belgium, and that peripheral countries banks continue to rely to great extent on the central bank for funds.

By contrast, Italian banks used the cilities more at the end of January, taking 273.9 billion, up from 271.8 billion. Italian banks share of total ECB lending rose to 27 percent from just above 24 percent.

French banks use of ECB cilities was 152.7 billion euros on February 12, down from 179 billion a month earlier. Virtually all of the reduction came from longer-term refinancing operations, Core which was cut by 25.6 billion.

Mario Draghi, President of the European Central Bank (ECB), addresses the media during his monthly news conference in Frankfurt, January 10, 2013. Draghi announced that the ECB leaves the interest rates unchanged.

The Bundesbank data released on Monday showed that German banks owed the central bank 49.5 billion euros ($66.1 billion) 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 January 30.

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