Eurozone: Doors open for a TLTRO III next year - SocGen

Anatoli Annenkov, Research Analyst at Societe Generale, suggests that of the latest measures taken by the ECB, the new TLTRO II is the most innovative, with the ECB offering to lend at a negative interest rate.

Key Quotes

“While aiming to boost lending, we expect the main impact to be to reassure markets over bank funding, with the relatively low bar for applying the lowest interest rate and the removal of sanctions implying that this liquidity offer will be less “targeted”.

Draghi claimed a “pretty successful” experience with the first TLTRO. We disagree and also doubt the new TLTRO II will do much to boost private sector lending in the current context of weak demand and structural rigidities. The take-up could still be high for the purpose of funding certainty.

In light of banks’ funding options and the credit needs of the real economy, we expect around 90% (€380bn) of the old TLTRO to be rolled over and a net take-up of around €150bn this year, mainly by peripheral banks.

Looking further ahead, we keep the door open for a TLTRO III next year which in terms of corporate credit expansion could be more successful as the investment outlook improves, possibly then also including mortgage loans.”