Eurozone Banks May Have Trouble Repaying ECB Loans

Some Eurozone banks reportedly may have trouble paying back the European Central Bank (ECB).

Banks are now repaying loans from the ECB’s Targeted Longer-Term Refinancing Operations (TLTRO) because the central bank raised the borrowing costs. Still, they may find it more difficult to raise funds in the current volatile markets, Reuters reported Friday (Dec. 9), citing the European Banking Authority (EBA).

“Banks must repay substantial amounts of central bank loans until 2024,” EBA said, per the report. “A number of banks will be able to rely on existing liquidity buffers — including central bank deposits — to pay back central bank loans. Some banks however may need to issue additional debt or increase deposits. It remains to be seen how costly replacing central bank funding will be.”

The ECB deploys TLTROs to offer longer-term loans to banks at favorable costs, encouraging them to lend to businesses and consumers in the euro area, ECB said in an explainer on its website.

The loans are targeted to maintain or increase banks’ lending, are available to banks only if they make loans to businesses and people and have longer terms to provide banks with stable and dependable funding.

Reuters reported Friday that the number of “non-performing” loans grew during the first half of the year as there was a downturn in the economy and a rise in the cost of living that impacted consumers.

While banks still have capital well above their regulatory requirements, they do not expect to see major improvements in profitability in the medium term, according to the report.

The Financial Times reported on Oct. 30 that rising interest rates and energy costs had forced European consumers to reduce their discretionary spending. Their spending on cars, movies and hotel bookings have all dropped as consumers drastically reduce their plans for major purchases.