ECB bank-funding programme sees low take-up

ECB President Mario Draghi hopes to encourage European banks to loan more money to firms

A European Central Bank measure designed to stimulate the flagging eurozone economy has seen a low initial take-up by banks.

The cheap loans for European banks have been designed to encourage lending to business.

But out of total loans of 400bn euros (£315bn) available on Thursday, only 82.6bn was taken up by 255 banks.

However, banks may be waiting for separate ECB measures due in October, analysts said.

Cheap loans to banks were part of a package announced in June designed to support lending and the economy.

The loans - called "targeted longer-term refinancing operations" (TLTROs) - see the banks pay 0.15% annual interest for up to four years.

Money market traders had been expecting banks to take up between 100bn and 200bn euros of TLTROs this week, with further interest in December, when banks get a second chance to apply for the cash.

Banks may be wary of taking up the loans before imminent ECB-led health-checks of the banking sector, said Karel Lannoo, chief executive of Brussels think tank the Centre for European Policy Studies.

"The European financial sector continues to be weak," said Mr Lannoo. "There may be a stigma because the markets are waiting for the AQR (asset quality review) in a few weeks."

However, banks may be waiting for details of a separate ECB programme to buy asset-backed securities, which are due out in October.

"We would warn about drawing too strong conclusions from the September round," said ABN Amro analyst Nick Kounis.