PARIS - EIGHT European mutual banks have struck a deal to lend to each other up to a total 15 billion euros (S$29.8 billion) to boost confidence in the financial sector, France's biggest bank Credit Agricole said on Thursday.

It and the other seven banks of the so-called Unico grouping agreed 'to mutually lend money to one another and re-open lines of unguaranteed bank credit' with loans up to three months, Credit Agricole said in a statement.

The credit lines will be worth 10 billion to 15 billion euros in total, the statement said, after the banks 'took the decision to reintegrate the European interbank finance market'.

The eight banks account for a fifth of the retail banking sector in Europe, with 110 million customers at more than 40,000 branches.

The other banks are DZ Bank of Germany, ICCREA of Italy, Finnish bank Pohloja, Dutch bank Rabobank, the Austrian Raiffeisen Zentralbank, Raiffeisen Switzerland and Banco Cooperativo of Spain.

Credit Agricole said the lending deal, concerning the interbank market, aimed to 'restore confidence in the banking sector'.

So-called interbank lending is vital for enabling banks to finance their commercial lending activities.

Commercial banks normally lend and borrow special 'interbank' funds between them to enable them to keep their accounts at the central bank in good standing in order to be able to maintain normal commercial lending.

This market had dried up, despite huge injections of central bank money, because banks were frightened other banks might be unable to repay.

Interbank money markets therefore determine the availability of credit for vast numbers of people around the globe, from managers trying to fund their businesses to families and students seeking mortgages and personal loans.

Thursday's statement said: 'This step forward is all the more important since the big European banks are scarcely lending any more money to one another day to day, and all other types of longer-term loan have ceased to exist.' -- AFP