Santander and BBVA best positioned for cut in ECB deposit rate

The European banking sector rose last Thursday 0.24% (vs +0.63% EuroStoxx 50) with Banco Santander (+0.5%) and BBVA (+1.1%) leading the gains among Spanish banks.

Bankinter analysis team believes that the cut in the deposit rate to -0.50% (from -0.4%) further penalises keeping excess liquidity in the ECB. Tiering (or the method of charging in tranches) only partially mitigates the impact with a volume of up to six times the coefficient of obligatory reserves (currently 1.0%) exempt. This favours banks with higher and more internationally diversified ratios of credit investment/typical resources like Banco Santander and BBVA.

Banks with lower ratios (greater excess of reserves) like Bankia will have to confront greater costs if they do not increase their bond portfolios, something that will probably end up happening – the IRR of Spanish bonds in the tranche 3/5 years gain attraction in the current situation.

At the European level, the best positioned entities are Intesa and Unicredit which have also benefited from the fall in the Italian risk premium and, to a lesser extent, ABN in Holland.

The most prejudiced banks in relative terms are Deutsche Bank and French banks (BNP and Credit Agricole). Lastly, it it worth pointing out the positive impact that the new TLTROs could have given that their remuneration could reach 0.5% (vs the 0.30% announced in the last meeting of the ECB) vs the current 0.4%.