European Central Bank. Picture: EPA/BORIS ROESSLER
European Central Bank. Picture: EPA/BORIS ROESSLER

FRANKFURT — The European Central Bank (ECB) allotted €45.27bn in its second offering of four-year super-cheap loans on Thursday, at the upper end of expectations — a welcome sign that bank lending was finally picking up.

Introduced in March as a potent tool to aid the bloc’s modest credit recovery, the targeted long-term financing operations (TLTRO II) aim to lower corporate borrowing costs, to induce spending and ultimately revive inflation.

But demand in the initial tender in June was lukewarm, suggesting that funding was a relatively low concern for banks, because they were more worried about finding customers with viable investment plans and healthy market prospects.

Banks took up €45.27bn on Thursday, more than twice as much as expected in a Reuters poll.

The actual figure may be somewhat lower, however. Banks repaid €9.4bn of a previous, more expensive facility, and if all of these were rolled over on Thursday, the net figure would be about €36bn, still well above forecasts.

Offered initially at a 0% interest rate, banks could be paid up to 0.4% of what they borrow by the ECB if they meet targets for lending cash to the real economy.

The take-up in the initial tender in June was €399bn from 514 banks, and most of that was banks rolling over a previous facility and the net figure was just €31bn, well below expectations.

Struggling with ultra-low inflation, the ECB will offer the new loans every three months. It has also cut its deposit rate deep into negative territory and is buying €80bn of assets per month with the aim of getting consumer price growth back to its target of close to 2%.