1. Skip to content
  2. Skip to main menu
  3. Skip to more DW sites
In focus
Los Angeles wildfiresClimate changeGerman election 2025
Latest audioLatest videos
Live TV

ECB loans don't reach all

March 28, 2012

Banks in the eurozone have not overcome their reluctance to lend to the private sector, although they themselves have borrowed vast amounts of cheap cash from the ECB. There are still fears of a credit crunch.

https://p.dw.com/p/14TKW
Image: picture-alliance/dpa

The rate of growth in loans provided to the private sector in the euro area slowed to 0.7 percent in February of this year from 1.1 percent in the previous months, the European Central Bank (ECB) calculated in its latest monthly data, which were released on Wednesday.

The continued reluctance of banks to pass on loans to private businesses and households looks odd against the background of European banks being able to profit from two unparalleled special liquidity measures by the ECB aimed at averting a credit squeeze in the 17 nations that share the euro.

The ECB lent more than one trillion euros ($1.3 trillion) to financial institutions at a rock-bottom interest rate of 1.0 percent for a period of three years.

"The slowdown in [the increase in private sector] lending fuels concerns that the three-year unlimited tender has not fed through to boost private businesses," HIS Global Insight analyst Howard Archer told AFP news agency. "At best, it can be said that lending to the private sector has essentially stabilized."

Sitting on vast resources

Since the ECB's two tranches of cheap money, lenders have parked record amounts of cash in the central bank's overnight storage facility. They would normally not do that because of the extremely low returns offered, but they consider the risks of losing money in the real economy too big for the time being.

"The ECB's cash provisions may have averted the tail risk of eurozone banks collapsing due to liquidity shortages," said Christian Schulz, an analyst with Berenberg Bank. "But they do not seem to have the desired effect on lending to the real economy."

The ECB on Wednesday also released data on the overall money supply in the euro area. The M3 measure of money supply, which is a key indicator of demand in the economy, picked up again in February of this year, rising to 2.8 percent from 2.5 percent in January.

The central bank uses the M3 barometer as a key guide to inflation pressures and sets interest rates accordingly. The ECB usually seeks to keep inflation below 2.0 percent. However, it stood at 2.7 percent in February.

hg/mll (AFP, Reuters)