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ECB business funding receives little interest

18 / 09 / 2014
ECB business funding receives little interestThe financial sector in Europe appears to have shown little interest in the European Central Bank (ECB) scheme to provide more credit to eurozone banks.

Although the ECB had made €400 billion (£315 billion) available for banks to use in targeted long-term refinancing operations, it has so far only been able to lend out €82 billion of this.

The money was intended to be used by banks to lend more to businesses and households, with the funds being repayable over four years at an interest rate of 0.15 per cent. The scheme is similar to the Bank of England's Funding for Lending programme, which also endured a lukewarm initial response when it began in August 2012.

Speaking to the Guardian, senior European economist at Capital Economics Jennifer McKeown said: "The consensus expectation in a survey of economists had been for an uptake of €150bn and even that would have been some way below the sums that the president suggested that he would like to see.

"But the fact that banks have borrowed relatively little suggests that they have little intention of increasing their lending, either because of their own risk aversion, a lack of demand for loans, or most likely both."

The perception of risk may lie in a calculation by the banks that as the economy is stagnating in many eurozone countries, there is a considerable risk of defaulting by companies or individuals, particularly should certain nations slip back into recession.

However, the economic picture in the eurozone is not uniform. Although it may be flat overall and countries like Germany and France have stuttered, the situation is worse in countries like Italy, but better in previously struggling nations like Spain and Ireland, where substantial growth appears to have re-emerged.

Indeed, companies involved with Ireland may have considerable reasons to be confident, as the country has just recorded growth of 1.5 per cent for the second quarter and 7.7 per cent for the past year.

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