MADRID | The Corner | The disappointing German ZEW together with the worsening of the Portuguese lender Banco Espirito Santo (BES) crisis weighed down on the markets on Tuesday. And that about today? Indeed, the banking sector will continue to be the main player in Europe with the BES drama as backdrop, although the calmness within the peripheral bonds markets is a positive sign and indicates the limited extent of such crisis.
MADRID | By The Corner | European banks have strenghtened their capital ratios for the upcoming stress tests and the AQR, whose results will be known after the summer. In that sense, between July 2013 and May 2014, EZ lenders increased their base capital by €45 billion, although it wasn’t entirely by issuing shares but contingent convertible bonds (CoCos), by which they would have raised around €35 billion.
BEIJING | By Huo Kan and Wu Hongyuran via Caixin | Starting July 1 banks in China are using a new method of calculating the loan-to-deposit ratio, a change that the regulator and analysts say will allow for more loans to be extended. The China Banking Regulatory Commission (CBRC) announced on June 30 the new set of rules for figuring the ratio, which is capped by law at 75 percent, meaning that banks cannot lend out more than three-quarters of the deposits they accept.
MADRID | The Corner | No matter whether they lend the funds on to the private sector, TLTRO is likely to be an attractively priced source of funding for banks, especially in the eurozone’s periphery. For those lenders “the costs of TLTRO could be as much as 109-114bp below equivalent wholesale funding for four years, or 68-73bp for two years if they do not increase net lending to the private sector,” an UBS report says. That being said, analysts aren’t sure this is particularly going to boost credit lending. In the graph you can see the dismal evolution of M3 in the 18 single currency area “Shame on the ECB, which has acted behind the curve as always,” The Corner senior economist Miguel Navascués states.
LONDON | By Barclays analysts | We believe that one of the reasons why loan growth has been so anaemic thus far in the recovery is because the recovery in capital spending has been very poor. However, an improving outlook for Capex could see loan demand pick-up and be supportive of future earnings growth for the domestic banking sector.
MADRID | By The Corner | In its first surveillance report after the Spanish banking sector bailout, the EC believes that entities are stronger and cleaner. Even if NPLs ratio has not stabilized, banks “are shifting towards more stable funding, such as deposits, and are relying less on borrowing from the Eurosystem.” As market access conditions have greatly improved, Brussels Spain’s return to positive economic growth (using February data, when growth estimates for 2014 were 1% instead of 1.1%) and was positive about the labour market slight improvement, although it warned that jobless rate remains very high (26% 2Q13). Brussels considers that unless further austerity measures are adopted the crisis-battered country won’t meet its deficit goals.
MADRID | By Luis Alcaide, Luis Martí and Jaime Santisteban | Deputy Director General at the European Union’s Financial Services Nadia Calviño considers that the EBA must keep playing an important role in the coordination of the financial supervision. She believes that transparency is a key issue that must prevail within the process of the European integration in the Eurozone.
LONDON | By Barclays analysts | We discuss the Italian economic and financial situation based on data and analysis contained in the November 2013 Bank of Italy Financial Stability Report. Following almost two years of recession in Italy, positive growth should resume in Q4 this year. After a likely 1.8% GDP contraction this year, we forecast a 0.8% expansion in 2014.
LONDON | By Barclays analysts | The two most important events for the market are at the end of the week – the ECB meeting and US employment report. Although no policy change is expected from the ECB, the market will be paying close attention to cues for a potential move in December.
MADRID | By Francisco López | In the current context of scarce credit activity and low interest rates, a substantial part of banks’ financial income originates in the fixed income portfolio. The banking sector’s balances of fixed-income come to €540 billion, which represent 17% of the total balance (around half of them being public debt).