Banks have not lent out ECB’s €1 trillion boost

Tim Wallace
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BANK lending to the private sector fell again in the Eurozone last month, with central bank efforts to get credit flowing barely impacting the “real economy,” data showed yesterday.

Loans to non-financial firms fell €3bn (£2.52bn) in the month, down from growth of €1bn in January, the European Central Bank data showed.

That takes annual growth in corporate lending down to just 0.4 per cent, from 0.7 per cent in the year to January and 1.1 per cent in December.

Lending to households remained unchanged in the month with a total stock of debt outstanding at €5.24 trillion, after rising €9bn in January and falling €5bn in December, taking the annual growth rate down to 1.2 per cent.

Although this gloomy data suggests the credit crunch is not over, there are some signs in the money supply data that the ECB’s efforts to pump cash into the economy are having an impact.

The central bank pushed over €1 trillion into the banking system in two long-term refinancing operations (LTROs), taking bad assets off banks and boosting liquidity in the hope that lending would rise.

However, a broader measure of money supply did accelerate in February – M3 rose 0.5 per cent in January and 0.8 per cent in February, after a 0.8 per cent fall in December.

“The two 3-year LTROs have significantly helped reduce the risk of credit supply constraints in parts of the Eurozone banking system, but it is too early to sound the all clear,” said economist Martin van Vliet from ING.

“That said, the subdued pace of overall lending to the private sector also likely reflects corporates and households remaining cautious in their spending plans in the current weakened and uncertain economic environment. In terms of monetary policy implications, today’s data are a firm reminder that interest rate increases likely remain a very distant prospect in the Eurozone.”