Spanish banks reduce their dependence on ECB’s funding

Spanish banks have been decreasing their dependence on European Central Bank’s funding to the euro system for nine months already, according to April data. A year ago, lent money from the ECB was almost 70% of the total. However the Spanish financial system still represents one third of all euro system banks, something that other countries consider excessive compared to the country’s size. Spain’ Central Bank, nevertheless, believes that Spanish banks have overcome their liquidity problems and the image of the leading Spanish banking groups among international investors is better than some big banks’ such as German Deutsche Bank or French BNP Paribas.

In fact, the whole European banking system has almost doubled its dependence on the ECB annual rate, although it has been reduced from the high levels reached at the beginning of the year. The Spanish banking sector has managed to get away, to a certain extent, from that image of excessive dependence on the funding provided by the European Central Bank to the euro system. Its total weight can still be considered excessive even if it is decreasing as a result of its restructuring process.

According to the latest data, April has become the ninth consecutive month of reducing that dependence on the ECB liquidity, which reached their maximum in August 2012 (more 388 billion euros). Back then markets were completely closed to Spanish banks and the country risk premium was triggered by concerns about the national economy.

Several Spanish banks have managed to start the current exercise with different emissions in wholesale markets, which has helped. The monthly decline in April, compared to March, has been little more than 1%, although this means a 2.39% of requested in the same month in 2012, when the weight of the Spanish banking sector on the whole of the euro system financing was 68,85%. Now, that weight is about 34%, although in March it had been lowered to 33%.

Sources from the Bank of Spain argue that liquidity is no longer one of the main problems of the Spanish banks and that the capture of customer deposits, despite the lower remuneration induced by the supervisor, has begun to recover after the Cyprus crisis impact among savers. The Bank of Spain even says that major Spanish banks have improved their image among international investors, overcoming large European banking groups like the Deutsche Bank German or French BNP Paribas.

The fact is that the whole euro system has doubled its dependence on the European Central Bank: in April 2012, total financing was of 382.7 billion euros. Last April that balance was 758.1 bn. This evolution leads some experts and analysts to think the situation of some banks from other European countries is not the best at present, although the full balance has been reduced from the highs reached in January, when it exceeded 900 billion euros in the ECB funding appeals.

Despite everything, the whole euro system has reduced its total dependence of the ECB liquidity. Even the total reduction in April (3.72%) has been higher than the one Spanish banks have achieved. The Bank of Spain perspective is confirmed with quarterly data of national institutions, which reflect how much of the maturities provided for this exercise would already be covered with the different lines of liquidity without resorting to wholesale markets or the ECB funding.

Some banking executives believe that Spanish banks are now in a much stronger position, after a few stress tests to some of its European competitors. According to them, some EU banks would not pass the stress tests performed by Oliver Wyman in 2012.