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Banco Santander SA Chairman Ana Botin said the European Central Bank faces a challenge as it launches its historic strategic review: monetary policy in the region isn’t working.“What they are trying to do, is basically you lower rates and there is more demand for credit,” Botin said in an interview with Bloomberg TV in Madrid on Wednesday after the bank published earnings. “But that’s not working. As a matter of fact, actually, in a lot of countries, loans are coming down.”

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New ECB President Christine Lagarde needs to keep in mind the challenges that lenders such as Santander are facing as the central bank undertakes its first strategic review since 2003, Botin said.

“The negatives outweigh the positives,” Botin said.

Her comments are the latest in a years-long debate about the effectiveness of the ECB’s negative interest rates. While bankers such as Botin say the subzero rates have done more harm than good, most central bankers argue the opposite. Favorable lending terms have bolstered loan demand from companies and households, underpinning domestic spending and investment - and ultimately also helping banks’ bottom lines.

While bank lending to companies has been declining in Spain, as well as Italy and the Netherlands, aggregate lending in the euro zone has been rising. The ECB said on Wednesday that the annual growth rate in December was 3.2%, down from 3.4% the previous month.

Excessive Riskpoland

Still, ECB policy makers have increasingly acknowledged that negative rates erode banks’ profitability and can also foster excessive risk-taking. In September, former president Mario Draghi introduced what’s known as “tiering,” a measure aimed at easing the impact on banks as rates look set to remain low for even longer.

But Botin said the measure hasn’t provided any relief.

“The tiering for us is a zero sum game – it’s not helping us,” she said.

Under tiering, some of the reserves that banks place at the ECB are exempt from the deposit rate, which is currently -0.5%.

How ECB ‘Tiering’ Is Meant to Cut Negative Rates Pain: QuickTake

Botin said ECB policy had helped by ensuring the currency could weather Europe’s financial crisis. “I think the ECB under Mario Draghi did an amazing job,” she said. “They basically saved the euro.”

Climate Change

Botin also told Bloomberg TV that the bank needs to do more to fight climate change.

Santander isn’t financing new coal-fired power projects in Poland, for instance, and isn’t taking on new customers that own coal plants there, she said. The lender owns Santander Bank Polska SA.

But the bank can’t stop financing existing plants in a country such as Poland where coal makes up about 80% of the energy supply, Botin said.

“We need to continue financing the existent ones, because otherwise there would be no energy in Poland,” Botin said.

To contact the reporters on this story: Jeannette Neumann in Madrid at jneumann25@bloomberg.net;Laura Millan Lombrana in Santiago at lmillan4@bloomberg.net;Francine Lacqua in London at flacqua@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Charles Penty, Paul Gordon

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