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EU To Cap Loans For Auto Industry

European Investment Bank said Monday it is unlikely to lend more than $8.9 billion to Europe's ailing carmakers, despite increased pressure by auto companies.

BRUSSELS (AP) -- The European Investment Bank said Monday it is unlikely to lend more than euro7 billion ($8.9 billion) to Europe's ailing carmakers, despite increased pressure by auto companies.

EIB's President Philippe Maystadt said the planned loans to the car sector would already amount to 10 percent of the bank's borrowing plans this year and would be capped.

Car industry executives have been calling for more state loans and government incentives in recent weeks as sales continue to fall. Maystadt said the bank was already increasing its total lending plans for 2009 amid requests from EU governments to provide more credit to smaller businesses as they struggle to make ends meet.

"We already have a huge borrowing program this year," Maystadt told reporters.

The bank has already earmarked euro7 billion in low-interest loans, most of which will fall under funding projects meant to spur research and development for cleaner, greener cars.

But Maystadt said that, as per banking rules, annual loans given to an individual company had to be capped at euro400 million ($506 million) to lessen the risk for the EIB.

"I don't think it would be reasonable to enlarge, to increase this borrowing program," Maystadt said, adding the bank also had to make sure other sectors received a fair share of loans.

"It is already more than 10 percent of total volume of lending for one single sector and we got requests from other sectors ... In terms of policy and also in terms of solid banking practices, it would be a mistake to concentrate too big a part of lending on one single sector," said Maystadt.

He said EIB loans last year had already increased by 21 percent from 2007, or euro57 billion ($72.2 billion) due to the economic and credit crisis.

Germany has pushed the EIB to bolster its line of credit to European carmakers like Volkswagen and Renault.

Car makers also called for the EIB to loosen its conditions on the euro400 million cap per company rule.

The European car industry, the world's largest, produces more than 18 million vehicles, but at last count sells only about 12 million a year. It employs some 12 million people directly -- and many more in the supply chain.

The EU's carmakers' association ACEA, said earlier this month that total European car sales could fall by up to 25 percent this year, and output by a quarter.

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