Banks will next week repay the European Central Bank 4.23 billion euros ($5.53 billion) from the two 3-year loans they took a year ago, a drop in the payback rate that shows they prefer to hold surplus cash in case financial markets clog up again.

The ECB said on Friday 35 banks had decided to repay funds from the loans on March 13, with 1.336 billion euros repaid from the first one and 2.894 billion from the second.

The amounts were below Reuters poll forecasts, which estimated banks would return 3 billion euros of the first round of cheap loans and 5 billion of the second. The loans are known as LTROs (long-term refinancing operations).

The ECB lent banks a total of more than 1 trillion euros in the twin 3-year, ultra-cheap lending operations in December 2011 and February 2012 - a ploy that ECB President Mario Draghi said "avoided a major, major credit crunch".

Banks took 489 billion euros in the first LTRO and 530 billion in the second.

In January, banks opted to repay the ECB 137.2 billion euros of the first of the twin loans at the first opportunity to so, handing more cash back early than expected, which led to higher market interest rates.

In the first opportunity to pay back funds from the second LTRO, banks returned 61.1 billion euros to the ECB.

(Reporting by Sakari Suoninen)