TLTRO: An X-Ray

The ECB will carry out six quarterly TLTRO between March 2015 and June 2016. Requestable amount will depend on the net loan granted by the entity. This quantities could reach up to three times the net loan from banks to private sector (mortgages excluded) between April 30tb, 2014 and date of operation, above a given reference point. This will be fixed according with accumulated progress of net loan in 12 months until April 2014.

The design of TLTRO includes a not very restrictive conditionality so requested amounts could be high: fixed rate is quite attractive; there are no specific conditions  for collaterals to be used in the operations and penalty, if goals are not met, is small. Therefore, if the net loan were lower to reference, banks would  pay off TLTRO in September 2016 instead of September 2018.

In phase 1, 7% of credit stock adds up to €400bn. 24% could go to Germany, 19% to France, 19% to Italy and 14% to Spain. Estimating the potential amounts in phase 2 is more complex. First of all, because the  ECB hasn’t specified the calculation reference, and secondly, because it will depend on credit evolution.

Regarding EZ aggregate, credit flow dropped until April to €140bn. If entities utterly stop deleveraging, maximum required amount could reach €450bn. In Spain, credit flow shrank  by 80bn in the last twelve months. Forecasts see a net credit fall worth up to €10bn in the next year. It would enable Access to €210bn financing in the less restrictive scenario.

Financing that entities could achieve would be high but liquidity doesn’t represent any longer a constraint on credit. That’s why analysts believe TLTRO main effect to lie in the financial costs improvement and its prospective transfer to customer-applied rates. Given that funding costs are already low in EZ core countries (not that much as TLTRO’s though), the best benefits would be in peripheral economies.

En definitiva, los efectos finales de las TLTRO dependerán fundamentalmente de la reducción de los tipos aplicados a clientes y los efectos positivos sobre el tono general de la política monetaria. Con ello se estima que las medidas del BCE suponen un sesgo al alza sobre las previsiones económicas de la región, que se irá valorando en los próximos trimestres.

TLTRO’s final impact will mostly depend on reduction of rates applied to customers and positive effects on monetary policy. This ECB action shows an upgrade on the eurozone’s economic prospects.