The latest measures adopted by the European Central Bank (ECB) to guarantee liquidity for enterprises in the real economy may not achieve their goal, an analyst said on Tuesday.
Marcello Bonassoli, assistant vice president at Canadian rating agency DBRS, told Xinhua recently that after costs, the profitability of ECB's Targeted Longer-Term Financing Operations (TLTRO) loans would be too low and make them not competitive.
A 5-percent yield on a hypothetical loan provided in connection with the TLTRO program would be reduced all the way down to 0.49 percent after taking into account the cost of the TLTRO itself, credit losses, capital costs and fixed costs, according to a simulation Bonassoli presented at DBRS's Italy Day held in Milan on Nov. 20.
The simulation assumed a default rate of 5 percent as estimated by DBRS, the major factor in reducing the profit for the bank.
Bonassoli said that the larger problem is the poor performance of the enterprises and the weak general economic situation. "You can create 150 different instruments, but if the performance isn't sufficient, they won't work," he said.
The new ECB program began in September 2014 and is scheduled to run until June 2016. The goal is to support bank lending to enterprises by making additional funding conditional upon lending activities to the real economy.
Despite previous liquidity operations and hopes for an economic recovery, credit to enterprises has continued to stay weak in numerous countries, including Italy and Germany.