Eurozone banks appear reluctant to lend out to the private sector the vast amounts of cheap cash they recently borrowed from the European Central Bank, data showed on Wednesday.
The ECB calculated in regular monthly data that growth in loans to the private sector slowed to just 0.7 percent in February from 1.1 percent the previous month.
The development is of particular concern given that, in two special liquidity measures in December and February aimed at averting a credit squeeze in the 17 countries that share the euro, the ECB lent more than 1.0 trillion euros ($1.3 trillion) to banks at a rock-bottom rate of 1.0 percent for a period of three years.
The slowdown in lending in February "fuels concern that the three-year unlimited tender in December has not -- so far at least -- fed through to boost lending to the private sector," IHS Global Insight analyst Howard Archer said.
"At best, it can be said that lending to the private sector has essentially stabilised," the analyst said.
The thinking behind the two unprecedented moves was that banks would lend it on to businesses and households and keep credit flowing in the debt-wracked eurozone economy.
However, since then, daily ECB data show that banks have been parking record amounts of cash in the central bank's overnight storage facility.
In normal times, banks shy away from depositing cash at the ECB, preferring to lend any overnight surplus to other banks where they earn a higher return, but the eurozone debt crisis has spawned a lack of trust between banks.
And that means institutions are opting to park the money at the ultra-safe ECB rather than lending it to their peers.
The February bank lending data only include the first so-called long-term refinancing operation or LTRO in December where 523 banks queued up to borrow 489.19 billion euros.
With the second LTRO not yet covered by the February lending data, "it is still premature to judge to what extent the total 1.019 trillion euros leant by the ECB to banks is likely to support lending," analyst Archer said.
"But the signs so far are disappointing and tight credit conditions remain a concern for eurozone growth prospects even allowing for limited demand for credit from the private sector," Archer concluded.
Annalisa Piazza at Newedge Strategy said that while ECB chief Mario Draghi has been insistent on the success of the LTROs, "the positive effects are far from being clear, so far, at least according to M3 statistics."
Christian Schulz at Berenberg Bank said that while the LTROs "may have averted the tail risk of euro-area banks collapsing due to liquidity shortages and stopped the spread of contagion on sovereign bond markets... they do not yet seem to have the desired effect on lending to the real economy."
The ECB also calculated that growth of the eurozone money supply, a key indicator of demand in the economy, picked up again in February, with the M3 indicator rising to 2.8 percent last month from 2.5 percent in January.
The ECB regards the M3 figure as a key guide to inflation pressures and uses it to set interest rates accordingly.
The central bank seeks to keep eurozone inflation below but close to 2.0 percent but it stood at 2.7 percent in February.
The central bank cut its benchmark interest rate by a quarter of a percentage point to 1.00 percent in December, arguing that future inflation is likely to slow as the eurozone debt crisis puts the brakes on economic growth in the single currency area.
The higher-than-expected M3 growth rate, plus the slowdown in growth in lending to the private sector will mean the ECB is likely to keep its interest rates at current levels for some time to come, analysts said.
The data "will provide the ECB with arguments to maintain its very expansive monetary policy," said Postbank analyst Thilo Heidrich.