Eurozone banks are set to take advantage of a new flood of central bank liquidity in a bid to boost lending to the region’s credit-starved businesses.

Faced with a stagnating economy, Eurozone banks are expected to borrow about €250bn in cheap four-year money from the European Central Bank in September and December, according to projections by Morgan Stanley, under the ECB’s ‘targeted long-term financing operations’.

Huw van Steenis, a banks analyst at Morgan Stanley, reportedly said: “We forecast that the peripheral banks will take almost all of their loan allocation as it would lower their cost of funding significantly and, hopefully, be passed on to the real economy in the form of lower interest rates.”

Mario Draghi, the ECB president, recently said that lending could eventually rise to as much as €850bn. The new loans would come on top of the more than €1tn in cheap finance the ECB pumped into the Eurozone between late-2011 and 2012 to avert a financial crisis.

Overall Eurozone banks have decreased lending to the region’s businesses by €561bn since 2009 according to research by the RBS, as they seek to raise capital and cut bloated balance sheets. Small and medium enterprises, which provide the bulk of Eurozone employment, have seen some of the sharpest falls in credit.