This Wednesday, June 28, is marked in red on the calendar. With a stroke of the pen, the balance sheet of the European Central Bank (ECB) will increase by 6%, with the return of 477,000 million euros corresponding to the loans under special conditions that European banks received during the worst months of the pandemic. A part of the amount, 38,000 million, corresponds to Spanish entities, which, like those of the rest of the euro zone, will from now on have fewer resources at their disposal and will be under more pressure to attract deposits. The experts agree on the importance of the moment, but also that the bank is prepared to face it without difficulty.
The key to what happens on Wednesday lies in an unpronounceable acronym: TLTRO. It refers to what are known as long-term financing operations, a kind of free liquidity bar with which the ECB has been watering the euro zone in times of difficulty. The largest round was distributed in June 2020, when banks agreed to 1.3 trillion euros in loans at a negative rate of 1%. And this week the largest block of all this debt matures.
TLTROs reached 2.2 trillion euros in mid-2021 and, since then, the figure has been decreasing. As of Wednesday, it will be much smaller and will be at the expense of two other smaller amortization windows, one at the end of the year and another in 2024.
“For banks, it will mean the end of their ability to refinance with such favorable conditions,” they explain from DWS. Entities will no longer enjoy an instrument that has allowed them to mitigate the effect of rate hikes when it comes to financing.
What will happen to the Spanish banks? According to the sources of the different entities, the big five have 76,220 million left to return, but this Wednesday they will have to face a lower figure of 38,000 million, while the rest of the amount will remain pending for the next two windows to settle accounts with the ECB.
Funcas calculates that 60% of the TLTROs recorded in the banks’ balance sheets expire this month. The system is now no longer flooded with liquidity, but the forecast is that the money will be returned without problems because “European banks have a level of liquid assets that is sufficient to deal with it without causing an imbalance.”
Santander has TLTRO for 25,000 million, of which it will now repay 6,500 million. CaixaBank has 15,620 million and will repay 7,000 million these days, compared to BBVA’s 14,400 million, of which it will subtract 11,000 million. Sabadell has TLTRO for 13,500 million, of which 8,500 million mature this week, compared to Bankinter’s 7,700 million, which is preparing to deliver 5,000 million.
The European banking authority, the EBA, shares the prediction that liquidity will soon be less and that entities will begin to feel interested in attracting resources from individuals in the form of deposits. In a report published a few days ago, he says that banks “should attract additional funds to replace TLROs.” There are two ways to do it: issuing debt or raising interest on deposits.
Now begins a game in which, as the top executives of the Spanish banks assured at the conference of the APIE journalists’ association held this week in Santander, the market and the needs of each entity will set the rate of rises in deposits. There are no political factors that encourage the trend, despite the messages from the Government.
The Vice President and Minister of Economic Affairs, Nadia Calviño, assured in the same forum that salaries are about to rise. “I have no doubt that the Spanish banking sector has to start transmitting the rise in interest rates to Spanish savings,” she said. And the vice president of the ECB, Luis de Guindos, went one step further: “We raised interest rates to affect the returns on assets and liabilities in their entirety.”
The EBA calculates that, at the end of last year, European banks had more than 10 trillion euros in individual deposits, of which close to a trillion correspond to Spain. Is it a lot or is it little? It depends on their liquidity needs. “If they embark on a competition for deposits, profitability will go up,” he concludes.
The truth is that Spain is late in remunerating liabilities. Average profitability stood at 1.33% in April, compared to the average for the euro area, 2.27%. The Bank of Spain says that 44% of this gap responds to the lower need of national banks for liquidity and another 16% to the “degree of concentration” of the market, which is higher than the European average.
With regard to liquidity, Spanish banks show higher rates than their European competitors. Van, according to a report by Alvarez
The latest Bank of Spain Financial Stability Report alluded to this aspect. Liquidity is high, but it has fallen in recent months “due to the reduction in TLTRO operations.” “To the extent that this ratio is above the 100% required, entities would not need to go to the market in the short term to cover liquidity outflows,” he says.
The banking association AEB has alluded to an additional aspect: granularity. With this word he refers to the composition of the deposit bases of Spanish banks, which, unlike those of other countries, are characterized by being more disaggregated among small clients. It is a point of strength compared to banks like Silicon Valley Bank, which concentrated deposits in a few hands, and it is also a factor that discourages launching large commercial campaigns.
Until now, the smallest banks have been the ones that have been encouraged to propose more aggressive deposit-taking offers. MyInvestor has just launched a 2.75% three-month deposit, the most profitable covered to date by the Spanish Deposit Guarantee Fund, while ING boasts of having gone ahead in remunerating savings and of having been able to capture thanks to its agility 1,300 million euros in Spain in a short time.
“What happens in the future will be what the client says,” said the president of CaixaBank, José Ignacio Goirigolzarri, in Santander. “Term deposits are arriving and progressively,” said César González Bueno, CEO of Sabadell. “It will be the entities themselves and the dynamics of competition that will have to resolve” the situation, said the president of the AEB banking association, Alejandra Kindelán.
The ECB has also stimulated liquidity in recent years by buying bonds for almost 5 trillion that will now be leaving its balance sheet at a rate of 28,000 million per month, according to DWS.
