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Periphery Credit Crunch Extends As Banks Hoard Bonds; Spain in talks over ‘bad bank’ scheme


–Spain, Italy banks buy EUR44 bln in bonds, but lending falls

–Private-sector lending also fell in Ireland, Greece, Portugal

–Healthy increases in credit in France, Germany, Netherlands

LONDON — Fresh signs of a credit crunch in the euro zone periphery emerged Monday, as new data showed banks continuing to hoard government bonds rather than sustain credit supply in their national economies.

New figures from the European Central Bank showed Spanish and Italian banks were once again heavy net buyers of euro- zone government debt in March, stacking up a total EUR44 billion. But the overall volume of loans outstanding to households and companies in those countries fell again, by nearly EUR12 billion.

The data once again confound ECB hopes that the banks would put its money to use in their respective economies.

Spanish banks had taken over EUR230 billion of the EUR1.02 trillion injected by the ECB at its two three-year credit operations around the turn of the year, while Italian banks had absorbed just under EUR200 billion. Since then, Spanish banks have bought nearly EUR59 billion in government bonds, while Italian ones have bought nearly EUR92 billion.

In March alone, Spanish banks raised their net purchases to EUR20.11 billion from EUR15.52 billion in February, while Italian banks raised their purchases to EUR23.70 billion from EUR23.14 billion.

By contrast, lending to households and non-financial corporations fell by EUR2.98 billion in Spain and by EUR9.76 billion in Italy.

Spain and Italy are the two biggest economies in the euro zone periphery, and the danger that either, or both, may be forced to look for a bail-out has weighed heavily on sentiment in the euro zone this year.

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