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Banks to return 11.4 billion euro of crisis loans to ECB next week

The euro sign landmark is seen at the headquarters (R) of the European Central Bank (ECB) in Frankfurt September 2, 2013. REUTERS/Kai Pfaffe
The euro sign landmark is seen at the headquarters (R) of the European Central Bank (ECB) in Frankfurt September 2, 2013. REUTERS/Kai Pfaffe

FRANKFURT (Reuters) - Banks will return 11.401 billion euros ($15.78 billion) in crisis loans to the European Central Bank next week, more than six times than the amount that was expected, accelerating the drain of extra cash out of the euro zone financial system.

The amount banks will repay on March 12 beat this week's repayments of 3.012 billion euros and is more than the 2.1 billion forecast in a Reuters poll.

It is the largest repayment since the end of last year, when banks returned large chunks of the long-term loans they took from the ECB in late 2011 and early 2012 to ride out a credit crunch.

Many banks used the cheap funds to buy higher-yielding government debt and next week's hefty repayment could be "mainly related to the expiring of some short-dated Italian bonds in early March", Annalisa Piazza, analyst at Newedge Strategy, said.

The euro hit a 2014 high of 1.3892 after the release of the repayment figures.

The year-end marked a cut-off point for an ECB snapshot of banks' balance sheets that it will assess this year and in the run up to the so-called asset-quality review, banks shed assets, such as loans.

The speed with which banks have been repaying the three-year loans has picked up over recent weeks again as confidence returned and banks began to rely less on central bank funding.

With banks repaying ECB crisis loans, the amount of excess liquidity, the amount of money banks have beyond what they need for their day-to-day operations, is falling.

It stood at 112 billion euros on Friday, the lowest level since late 2011, just before the ECB flooded the market with its cheap loans. Excess liquidity peaked in early 2012 at around 800 billion euros.

ECB Executive Board member Benoit Coeure said last month market participants were learning to adapt to an environment of less excess liquidity, "learning their way back to normality".

On Friday, the ECB said six banks would repay 3.133 billion euros from the first LTRO on March 12, and eight banks would pay back 8.268 billion from the second LTRO.

($1 = 0.7225 euros)

(Reporting by Frankfurt newsroom)

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