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ECB's Coeure sees stronger demand for TLTROs from Dec

[September 26, 2014] By Marja Novak

PORTOROZ Slovenia (Reuters) - The European Central Bank expects to see stronger demand for its new long-term loans once it has completed an unprecedented round of health checks on lenders, after which they should also be in a stronger position to lend, a top policymaker said on Friday.

The ECB is assessing the books of the euro zone's 131 largest banks to try to weed out soured loans and check how the banks would fare under certain shock scenarios, before the central bank takes over as the bloc's banking supervisor in November.

The results are due at the end of October and, uncertain of the outcome, banks have been reluctant to make use of the ECB's new flagship policy tool - the four-year loans or "TLTROs", which drew lackluster demand when first offered last week.

ECB Executive Board member Benoit Coeure expects demand to pick up in the next round.

"We expect a stronger take up from banks in the December operation and in the six subsequent instalments until June 2016," he said in a speech at a seminar with the International Monetary Fund and Slovenia's central bank.

The median forecast in a Reuters poll of 21 traders polled on Monday showed the December tranche is expected to total 175 billion euros compared with the 82.6 billion euros banks took last week.

Banks can potentially take up to 400 billion euros in September and December combined.

Coeure said the ECB's comprehensive assessment of the euro zone top lenders already showed signs that it had affected the speed and quality of their deleveraging, even though the checks had not finished yet.

"This acceleration of the process suggests that, once the final results are known and residual uncertainty is removed, banks will be in a stronger position to resume new lending," Coeure said.

(Writing Eva Taylor; Editing by Hugh Lawson)

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