ECB TLTROs working but lending has a long way to go

June 24, 2015

A labour council representative holds a facsimile 500 euros note with the portrait of Carlos Ghosn, Chairman and CEO of the Renault-Nissan Alliance, before the French carmaker Renault's shareholders general meeting in Paris

Almost a year after the European Central Bank announced new cash loans tied to actual lending to small and medium enterprises, data on Friday is expected to show euro zone private loans are picking up pace.

To stimulate loan growth the ECB aimed to provide billions of euros in cheap cash, encouraging much of that money to be lent to businesses.
The central bank, through its Targeted Long-term Refinancing Operations (TLTROs), has doled out 384.08 billion euros to banks so far.
The ECB’s credit-easing measures could be working, according to the consensus from 11 economists in a Reuters poll last week.
Private lending, considered the euro zone’s economic backbone, is forecast to rise 0.4 percent in May on a year-on-year basis.

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If the consensus is confirmed, credit growth will be the highest in more than three years and will point to private loans having turned a corner after shrinking for most part since 2012.

But with the euro zone economy likely to grow at a lackluster pace in each quarter until the end of 2016, strong credit growth is still a long way away, economists said in a separate Reuters survey.
Indeed, 21 of 31 economists said private lending growth will not return to the double-digit rates seen before the financial crisis.

Karsten Junius, economist at J. Safra Sarasin said:

Net private lending growth will remain lower than before the (financial) crisis for several reasons, the main one being lower potential growth.
Households will expect a lower lifetime income against which they could borrow today.

– with reporting by Swati Chaturvedi

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