Banca March: tomorrow, March 27th, the ECB and European banks will face the last large maturity of the TLTROs (“Targeted Longer-Term Refinancing Operations”) for an amount of approximately €216 billion. According to our estimates, this maturity will represent a reduction in the balance sheet of around -1.6 p.p. in terms of GDP, and will leave an outstanding balance of €177 billion (8% of the programme’s initial amount).
It is important to note that this figure corresponds to 65% of the original amount lent to banks as the remaining 35% has been repaid early. As rates escalated and lending conditions became less favourable, banks have been repaying loans to the ECB in advance. On average, 53% of TLTRO loans have been repaid in advance.
For the rest of the year, €177 billion of TLTROs (-1.6 p.p. additional in terms of GDP) and €245 billion of the APP asset purchase programme (-2.2 p.p.) remain to mature. Lastly, with regard to the pandemic asset programme (PEPP), the bank announced in December that, as of July 2024, it will reduce its portfolio by €7.5 billion per month until the end of the year (-0.4 p.p. in terms of GDP), while, as of next year, it will abandon reinvestment in this type of assets. In this respect, the countries that will be most affected by this measure are: Italy, Spain, France and Germany, whose holdings of PEPP assets amount to 14%, 13%, 11% and 10% of their respective GDPs.
Together, all these maturities will allow the ECB’s balance sheet to stand at 42% in terms of GDP at the end of 2024, well below the 49% observed in December 2023. Despite the importance of this withdrawal of stimuli, the discussion surrounding the balance sheet has gone unnoticed, given that the focus has been on when the cuts will begin.
