Spanish banks’ borrowings from the European Central Bank jumped by almost 50 percent in March, reaching the most on record, as lenders tap emergency loans and channel some of it into sovereign debt purchases.
Average net borrowings by Spanish banks climbed to 227.6 billion euros ($300 billion) last month from 152.4 billion euros in February, the Bank of Spain said on its website today. Spanish lenders took 29 percent of the total long-term loans offered to euro-region banks, the data showed. That includes the three-year long-term refinancing operation loans known as LTRO.
Spanish banks are using some of the emergency loans to support the nation’s debt market as Treasury data shows banks have piled up holdings of Spanish bonds. While that helped tame the country’s borrowing costs, it also meshes more closely together the risks to lenders and the sovereign, Economy Minister Luis de Guindos said this week.
“The whole point of the LTRO was to incentivize the banks in ailing countries to take as much liquidity as they could, and the Spanish banks have done just that,” Gilles Moec, co-chief European economist at Deutsche Bank, said by phone.
Spanish bonds fell, pushing the 10-year yield to 5.93 percent at 11 a.m. in Madrid from 5.82 percent yesterday, and widening the gap between Spanish and German borrowing costs to 416 basis points.
Shares of Banco Bilbao Vizcaya Argentaria SA (BBVA), Bankia SA and Caixabank all fell about 2 percent in Madrid.
“A consequence of the ECB’s liquidity measures is that the correlation between sovereign risk and banking risk increased all over Europe, since banks used the money to buy public debt,” de Guindos said on April 11.
BBVA Chairman Francisco Gonzalez called on the ECB in November to offer loans of three years to banks, saying lenders could use them to buy government bonds. Spanish banks’ holdings of government debt jumped to 220 billion euros in January compared with 178 billion euros in November, according to data from the Spanish Treasury.
The ECB has lent European banks about 1 trillion euros in the two three-year operations, the last of which was on Feb. 29.
“They have quite a significant war chest to continue to buy sovereign bonds and that’s the positive news,” Moec said. “They can continue to defend the sovereign.”
In net terms, Spanish banks took more than 60 percent of the amount taken by euro-region lenders as total net lending rose to 361.7 billion euros from 322 billion euros in February, the data today showed. That net figure is reached by subtracting the funds that banks deposit at the ECB.
“The market will probably look at this and see it as a big number, but it’s important to see it in perspective,” said David Owen, chief European economist at Jefferies International Ltd. in London.
The Spanish banking industry’s total assets amount to 3.67 trillion euros, and the net ECB lending is equivalent to about 6 percent of that figure. The equivalent number for Portugal is 9.7 percent, according to the latest available data.
Deputy Economy Minister Fernando Jimenez Latorre said today it’s “reasonable” that Spanish banks took advantage of the “interesting opportunity” presented by the LTRO loans.
Spain’s government is trying to restore investor confidence in the nation’s finances and local lenders as it implements the deepest austerity measures in at least three decades and takes steps to overhaul a shrinking economy. Parliament approved late yesterday a bill to limit budget deficits and tighten the central government’s grip on regions that overspend.
Prime Minister Mariano Rajoy’s cabinet plans to approve a set of measures to fight tax evasion today as part of its efforts to narrow the budget deficit. The government, in power since December, is seeking to slash the budget deficit to 5.3 percent of gross domestic product this year from last year’s 8.5 percent, even as the economy contracts and unemployment exceeds 23 percent.
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