European banks to repay €137-bn loans: ECB

28 Jan 2013

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Hundreds of European banks which availed cheap funding from the European Central Bank (ECB) during 2011 and 2012 will repay a significant part of the loans earlier than their due dates,  indicating that the financial markets in the crisis-hit eurozone have been improving.

About 278 banks in the eurozone will repay €137 billion ($184 billion) to the ECB, well above economists' forecasts, on the first early repayment opportunity on 30 January.

Banks borrowed over €1 trillion of three-year loans from the ECB, known as Long Term Refinancing Operations (LTRO), in two installments: €489 billion in December 2011 and an additional €530 billion in February 2012.

The repayment amount is more than a quarter of the first installment and well above the median forecast of €84 billion according to a Bloomberg News survey.

The ECB intervened when the struggling banks stopped lending during the eurozone debt crisis. According to an ECB report, the LTRO is expected to add up to 0.8 per cent to the eurozone's gross domestic product in 2013 through enhanced bank lending.

The loans were provided at the average benchmark interest rate of the ECB, which is currently 0.75 per cent, with the option that they can be repaid after a year.

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