Euro zone private loan data still looking more like groan data

November 24, 2014

It’s been more than two years since euro zone banks increased net lending to private businesses. And it’s been nearly half a year since the European Central Bank launched a new plan to turn that situation around.

Everyone is still waiting for results.

euro zone private lending


The latest Reuters Poll forecasts another 1 percent contraction in net lending to the private sector versus a year ago, only a fractionally slower rate of decline than the 1.2 percent fall reported in the month before. There was barely any variance in opinion either, with a few expecting a 1.1 percent decline. Only eight economists out of a sample of more than 40 or so who regularly forecast euro zone economic indicators even had a view.

To be fair, it’s probably very difficult to predict how much money banks are going to lend to their customers, not to mention aggregate all of that across an 18-member currency bloc and compare that with a year ago.

One thing is clear: there is a broadening consensus that the Targeted Long-Term Refinancing Operations (TLTROs) the ECB launched in June are not working the way many had hoped. The aim was to provide hundreds of billions of nearly-free money, encouraging large swathes of it to be loaned on to businesses.

Euro zone money market traders surveyed by Reuters each week have been consistently pessimistic about the programme’s prospects, despite it being their second nature to take free (or nearly free) money when it’s made available to them.

Apart from the sclerotic state of the euro zone economy, the most obvious lack of success for the programme is the fact that banks are expected to take up well short of the 400 billion euros of loans on offer — just under 233 billion. One tender already took place, to lacklustre demand, and only 150 billion euros’ worth are expected to be taken up in the December tender.

“Lack of demand for TLTROs (is) a clear sign it will do almost nothing to boost lending substantially,” said one trader on Monday.

ECB President Mario Draghi gave one of his most strongly-worded speeches ever late last week, signalling he is close to launching sovereign bond purchases to get a dangerously low inflation rate, expected to fall to 0.3 percent in November from 0.4 percent, back to the 2 percent target.

But earlier that same week, he was optimistic about the latest ECB quarterly bank lending survey and hinted that there may be some better news ahead.

“We see early indications that our credit easing package is delivering tangible benefits,” Draghi told a session of the European Parliament, adding that the “credit trough seems to be behind us.”

That may be true, but that may also mean the euro zone is still a long way from a generating the kind of credit growth that would be expected in a rapidly-expanding economy.

ECB lending

— With reporting by Rahul Karunakar, graphic by Vincent Flasseur






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