Payments due on next tranche of ECB loans Banks are next week expected to pay back another large chunk of the cheap, three-year money borrowed from the European Central Bank a year ago as policy makers and investors look for further signs of recovery in the eurozone. The ECB will on Friday reveal how much banks across the eurozone will repay of the second tranche of the three-year, longer-term refinancing operations, with the consensus being that about €130bn of €529bn borrowed last February will be returned at the first repayment opportunity. "LTRO repayment is a signal of the rehabilitation of Europe's major banks, even if the adjustment process remains challenging for some second tier banks," said Huw van Steenis, banking analyst at Morgan Stanley. A figure substantially less than expectations may indicate problems with the pace of recovery in the eurozone financial system. Lyn Graham-Taylor, fixed-income analyst at Rabobank, said much higher and "it could increase expectation that the ECB will have to eventually take action to maintain its commitment to keep excess liquidity in the system above €200bn. It's obviously way above that now but it could encourage talk of taking easing action on rates which could lead to flattening of euribor and Eonia. However, the fact that it was not clear from the ECB data exactly which banks were repaying early, meant it was difficult to interpret the data, he said. The ECB pumped about €1tn into the eurozone banking system under its LTRO programme in December 2011 and February 2012. The liquidity injection was widely seen as having averted a liquidity squeeze in the eurozone banking system, helping to restore market confidence at a time of extreme stress. Banks were able to start making early repayments of the €489bn lent in the December 2011 tranche last month. While lenders can repay once a week every week until maturity, in a show of strength, many banks chose to make a sizeable repayment in the first week. About €137bn was repaid by banks across the eurozone at the end of January - most notably from lenders in Spain, which together with Italian banks were the biggest users of the LTROs. A further €12bn has been paid by eurozone banks in the weeks since then. When the window for the second LTRO, which saw 800 banks borrow about €529bn from the ECB, opens next Wednesday, analysts expect Spanish, German and French banks to start repaying. However, Italian banks are likely to maintain their cautious approach given the uncertain political outlook in the country. There has been some suggestion that banks that fail to repay the money early could risk being stigmatised. However, for many banks in the eurozone periphery, borrowing from the ECB at a rate of 0.75 per cent is still far cheaper than accessing money directly from public debt markets.