Danske Research Team
Danske Bank A/S
The ECB just published the voluntary repayments of the second round Targeted Longer- Term Refinancing Operations (TLTRO2). Euro area banks decided to repay EUR11bn at the end of the month. The EUR11bn was relatively low as expected, as banks generally have little incentive to repay at this stage, see more later. Banks could, in theory, have repaid up to EUR399.3bn in this operation later this month. This month marks the first time where banks have the first possibility to repay voluntarily the first round of TLTRO2s that the ECB conducted from June 2016 to March 2017.
TLTRO – reminding ourselves
The ECB conducted two rounds of the Targeted Longer-Term Refinancing Operations (TLTRO), round one in 2014-16 and round two in 2016-17. Both operations were intended to target the real economy, but banks could also use the liquidity operations for long-term funding at favourable rates (all operations have a four-year maturity). In particular, this has been interesting due to the long maturity of the operations, making it possible for them to count towards the liquidity coverage ratios, such as NSFR.
As of this summer, two years after the first operation in June 2016, the four TLTRO2s can be repaid voluntarily on a quarterly basis starting this June. The first round TLTRO (also dubbed the ‘stick approach' due to the incentive structure) has a remaining outstanding volume of around EUR30bn and will mature on 26 September 2018, while for the more important TLTRO2 from an excess liquidity point of view, the total outstanding volume is EUR740bn (EUR729bn as of 27 June).
The shaded area in the chart to the right indicates the early repayment possibility. We expect the majority of the TLTRO outstanding volume to be repaid close to maturity and at the earliest when the maturity is just less than one year. The TLTRO2 has to be repaid in full by June 2020 through March 2021.
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