The Spanish banking system holds some €108bn liquidity surplus

For the first time in a year, data from the Spanish banking system appeal to the European Central Bank fell in September. The first 3-year injection auction in November 2011 allowed the Spanish banking industry to get cheap and long-term funds, which substantially varied its liquidity position.

It also limited risks associated with restrictions to renew and issue bank debt and to attract a sufficient volume of retail funds to offset the fall in wholesale funding.

According to analysts at Afi, if the diversity of sources of liquidity bank is taken since November 2011 into account, the Spanish banking system would enjoy a liquidity surplus of €108 billion as to July 2012–latest available data.

Some factors have contributed to improve this position. A Eurosystem’s gross loan increase in that period, of €278 billion, plus the €12 billion liquidity release linked with a one-point reduction of minimum reserve ratio. Also, a reduction in outstanding credit to the private sector by €68 billion, a net issuance of promissory notes for €441 billion and an increase of funding in the marginal deposit of €19 billion.

Other factors, though, have contributed to the deteriorating liquidity position. Bank debt maturities (wholesale funding) of €60 billion. An increase in public debt holdings by nearly €70 billion–other domestic debt and foreign debt purchases have been residual. Above all, the correction of the deposits total outstanding amount, including repo with foreign counterparts and the change in the position of ‘other financial corporations’ (securitisation funds, securities firms, and so on).

Although differences between entities are significant, it is true that the remaining liquidity of the banking system has increased in recent months (in April 2012, with two already carried out Long-Term Refinancing Operations, it stood at €85 billion).

Afi experts noted that this surplus is an important factor to consider in order to cover bank debt maturities for the rest of the year (about €35 billion from August to December. Spain’s banks will have to make additional corrections deposits, too, and absorb part of the Treasury’s gross issuance scheduled for the last quarter of the year (€54 billion).