Banks to return 6 billion euros in crisis loans to ECB next week

BANGALORE (Reuters) - Banks will repay 6 billion euros of their crisis loans to the European Central Bank next week, less than this week's 8.3 billion, reflecting a fall in extra liquidity in the euro area, a Reuters poll showed.

The pace at which banks are repaying the loans they took from the ECB in December 2011 and February 2012 has slowed from amounts as high as nearly 19 billion euros last month, as excess liquidity has dropped to critical levels.

Excess liquidity - extra cash beyond what banks need for their day-to-day operations - was at just 115 billion euros (95 billion pounds) on Monday compared with around 800 billion at its peak in early 2012.

Once excess liquidity drops below 100 billion euros, bank-to-bank lending rates are expected to move up, making it more expensive for banks to find funding.

That could push ECB President Mario Draghi to ease monetary policy.

At meetings between top finance ministers and central bankers on Saturday, Draghi said two factors would drive any decision on monetary easing: "One is an unwanted tightening of monetary financial conditions, and the second is deterioration of our medium term outlook.

The poll showed the central bank is expected to allot 106.0 billion euros at its weekly tender, just a tad more than the 104.62 billion euros maturing this week.

(Reporting by Rahul Karunakar; Polling by Kailash Bathija; Editing by Ruth Pitchford)