ECB’s cheap bank loans fail to spur credit growth in Italy, Spain

The European Central Bank's cheap bank loans, a form of stimulus launched by the eurozone regulator, failed to produce desired results in Italy and Spain, data shows.

The loan package offering cheap money — known as targeted longer-term refinancing operations (TLTROs) — was aimed at boosting banks' credit growth.

Italian and Spanish banks, however, apparently did not use the TLTRO funding to issue loans as the two countries posted negative loan growth, January data showed.

Banks, particularly in Italy and Spain, face a cliff-edge as the ECB's 739 billion-euro ($839.13 billion) TLTRO approaches repayment dates in 2020-21.

According to Pictet Wealth Management data cited by Reuters, Italy has estimated 250 billion euros of TLTRO-II holdings, while Spain has 175 billion euros, making them the countries where the take-up of these loans was highest.

The ECB will soon discuss new, multi-year loans to banks, its chief economist Peter Praet said last month, but he hinted that a new round of credit may not be as generous as a previous facility. Praet's comments suggested a new round of TLTRO will be discussed as soon as the ECB's next meeting, on March 7. But a decision, particularly on the terms of the loans, may have to wait.