Some 278 banks are to repay €137 billion in cheap funding to the European Central Bank on January 30th, the bank said yesterday, in a further sign of a gradual return to health for the euro zone’s financial system.

The ECB started offering cheap three-year money to banks in December 2011. The two so-called longer-term refinancing operations (LTRO) were greeted as a decisive step in restoring confidence in the euro zone’s financial system and ultimately led to the ECB pumping more than €1 trillion into about 800 banks.

“The strong LTRO repayment is a strong signal of the rehabilitation of many European banks,” said Huw van Steenis, analyst at Morgan Stanley.

The amount to be repaid at the end of the month is more than most analysts estimate, although banks can announce weekly how much they are paying back, making any accurate estimate difficult. Yesterday’s announcement referred only to the first tranche of LTRO funding, which totalled €489 billion. Expectations for early repayment ranged between €100 billion and €200 billion for the first few months of this year. Neither the ECB nor the Irish Central Bank gave details on which banks were repaying their money.

Although the beginnings of an exit from one of the ECB’s crisis-fighting measures shows an improvement in the euro zone’s financial sector, some senior bankers have expressed concern that the LTRO repayments will again lay bare stark differences between banks, stigmatising those in crisis-hit southern countries.

Those banks repaying money are more likely to come from countries where funding is cheap and plentiful, which is still not the case in Spain, Portugal, Ireland and Italy, in spite of a marked calming of nerves in financial markets about the fate of the euro zone.– Copyright the Financial Times Limited 2013