Market stress may pressure Spanish banks despite strong liquidity- cenbank

Market stress may pressure Spanish banks despite strong liquidity- cenbank

By Jesús Aguado

MADRID (Reuters) -Spanish lenders may feel the impact from rising global risks, such as the higher cost of funding and liquidity stress, though their cash positions remained stable in March, Bank of Spain officials said on Wednesday.

In its semi-annual financial stability report, the central bank warned global uncertainty could lead to a higher cost of equity in the sector in the coming quarters, while macro-economic risks could have a negative impact on banks’ profitability and solvency.

“This may put under negative pressure the favourable financial situation with which (Spanish lenders) started 2023,” it said.

The Bank of Spain noted however that risks to the Spanish financial system were limited due to a lack of any significant direct exposure to the banks at the heart of the recent global turmoil. It also underscored the sector’s strong liquidity ratios.

Global banking shares went into a tailspin last month after the failure of Silicon Valley Bank and two other lenders in the United States, as well as the forced takeover of Credit Suisse by UBS, but markets have since largely calmed.

Spanish banks’ exposure to Credit Suisse stands at up to 400 million euros ($437 million), according to Bank of Spain officials.

The central bank urged lenders to ensure they have adequate systems in place to recognise risks early on to preserve confidence in the sector.

It also highlighted positive elements of Spanish banks’ business model, such as a diversified deposit base, with the bulk of retail clients’ deposits guaranteed.

As of December, the liquidity coverage ratio of Spanish lenders stood at levels close to 180%. A ratio above 100% means they don’t need to tap the markets in the short term to cover for potential outflows of funds in a 30-day stress scenario.

A Bank of Spain official said that neither Spanish, nor European banks, had suffered a significant worsening of their liquidity ratios in March despite episodes of stress in entities in the United States or Switzerland.

“Spanish or European entities have not seen outflows of resources or consumed liquid resources,” Carlos Perez Montes, director of the Bank of Spain’s financial stability unit, said.

The institution’s head of financial stability Angel Estrada also said on Wednesday that it may be worth considering different parameters to measure liquidity ratios, given how bank runs, such as the one experienced by SVB, are able to intensify and spread fast thanks to new technology and the speed of access to bank accounts.

“All what has to with communication is very important in order to avoid panic (outflows of funds),” Estrada said.

(= 0.9158 euros)


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