Britain’s two part-nationalized banks plan to tap the European Central Bank’s special three-year funding scheme for a combined amount of about 15 billion euros ($20 billion), on a par with some of the euro zone’s largest banks.
Lloyds and Royal Bank of Scotland have both indicated that the scheme—known as the three-year LTRO, or long-term refinancing operation—is attractive because of its low 1 percent interest rate.
A repeat of the debut December LTRO auction, which resulted in 489 billion euros being raised by 523 banks, will take place on Wednesday. Analysts expect widespread take-up with most estimating about 500 billion euros of demand, though several stand by earlier forecasts that the number could be closer to 1 trillion euros.
Reporting annual results late last week António Horta-Osório, Lloyds chief executive, said: “It might make sense for us to access the LTRO.” Bruce van Saun, RBS finance director, said: “The LTRO is offering relatively cheap money and there is very little stigma around taking it.”
Neither bank would comment on how much they planned to raise through the facility. However, people familiar with their plans said Lloyds, which did not use the LTRO in December, would rubber stamp a plan on Monday to seek about 10 billion euros of funding. The money would be used to part-fund a portfolio of nearly 30 billion euros of euro zone lending, focused on Ireland, the Netherlands and Spain, which is set to be wound down over the next three years. About 20 billion euros of that exposure is already funded through customer deposits.
RBS, which took about 5 billion euros of LTRO money in December, is set to take a similar amount in Wednesday’s auction, according to senior bankers. The group’s euro zone exposure is focused on Ireland, where it owns Ulster Bank.
The UK’s two other big banks may also get involved. HSBC , which is expected to reveal in its annual results on Monday that it took several billion pounds of LTRO money in December, could repeat the exercise this week. Barclays has not ruled out taking part, despite having shunned the December operation.
UK banks’ appetite for ECB money coincides with the end of the Bank of England’s help providing funding for banks. The Special Liquidity Scheme, through which more than 30 banks and building societies raised a combined 185 billion pounds of funding, has ended and the Credit Guarantee Scheme, which underwrote bank bond issuance, is winding down its operations.