European Investment Bank puts loans to Volkswagen on hold

By Barbara Lewis

BRUSSELS (Reuters) - The European Investment Bank (EIB) has stopped making loans to Volkswagen pending an investigation into whether some of its previous funding could have been used by the German carmaker to cheat diesel emissions tests.

Volkswagen (VW) has been embroiled in scandal since September, when it admitted to rigging U.S. emissions tests for some diesel vehicles using software known as "defeat devices".

While no link has been proven between any EIB loans and defeat devices, the bank cannot yet rule out a connection between the banned software and "part of a 400 million euro (302.38 million pound) EIB loan," EIB President Werner Hoyer told reporters in Brussels.

The loan was repaid in full by VW in 2014.

"To be on the safe side, we have decided to put on hold any new loans to Volkswagen for the time being," Hoyer said, adding findings would be assessed "at the latest within a year".

The EIB describes itself on its website as "the largest multilateral borrower and lender by volume". It provides loans on favourable terms for sustainable investment projects in line with EU policy.

It described the Volkswagen group as "a long-term partner" and said it had lent VW, together with subsidiaries worldwide, 5 billion euros since 1990. Of this, 1.9 billion had yet to be repaid.

A Volkswagen spokesman declined to comment, saying only that the company had been in confidential discussions with the EIB for some time.

The carmaker faces multi-billion dollar fines over the emissions scandal.

Last month, sources familiar with the matter said VW had agreed a 20 billion euro bridge loan with 13 banks to help shoulder the costs of the scandal.

(Reporting by Barbara Lewis; Editing by Mark Trevelyan; additional reporting by Jan Schwartz in Frankfurt; Editing by Mark Potter and Mark Trevelyan)