Wednesday June 28 is marked in red on the calendar. Suddenly, the balance sheet of the European Central Bank (ECB) will increase by 6%, with the return of 477,000 million euros corresponding to credits under special conditions that European banks received during the worst months of the pandemic. Part of the amount, 38,000 million, corresponds to Spanish institutions, which, like those in 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 accessed 1.3 trillion euros in credits at a negative rate of 1%. And this week the biggest block of all that debt comes due.
TLTROs reached €2.2 trillion in mid-2021, and since then the number has been decreasing. As of Wednesday, it will be much smaller and will be accounted for by two other smaller amortization windows, one at the end of the year and another in 2024.
“For the banks, it will mean the end of their ability to refinance with such favorable conditions”, they explain from DWS. The entities will no longer enjoy an instrument that has allowed them to mitigate the effect of rate rises when financing themselves.
What will happen to the Spanish banks? According to the sources of the various entities, the five big ones have 76,220 million left to return, but on Wednesday they will have to deal with a lower figure of 38,000 million, while the rest of the amount will remain pending in the next two windows for settle accounts with the ECB.
Funcas calculates that 60% of the TLTROs accounted for in the banks’ balance sheets mature this month. The system is now no longer flooded with liquidity, but the forecast is that the money will return without problems because “European banking has a level of liquid assets sufficient to face 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 pay back 7,000 million these days, compared to BBVA’s 14,400 million, of which 11,000 million will remain. Sabadell has TLTRO for 13,500 million, of which 8,500 million expire this week, compared to 7,700 million from Bankinter, which is preparing to deliver 5,000 million.
The European banking authority, the EBA, shares the prediction that liquidity will soon be reduced and that institutions will begin to feel interested in attracting resources from individuals in the form of deposits. In a report published a few days ago, he asserts that banks “should attract additional funds to replace TLROs”. There are two ways to do this: by issuing debt or by raising interest on deposits.
Now begins a game in which, as the first managers of the Spanish bank assured at the days of the association of journalists APIE held this week in Santander, the market and the needs of each institution will set the pace of increases in deposits. There are no political factors that encourage the trend, despite the messages from the central government.
The Vice-President and Minister of Economic Affairs, Nadia Calviño, assured the same forum that salaries are about to rise. “I have no doubt that the Spanish banking sector must start passing on the increase in interest rates to the savings of Spaniards”, he said. And the vice-president of the ECB, Luis de Guindos, went a step further: “We raise interest rates to affect the returns on assets and liabilities completely”.
The EBA calculates that, at the end of last year, European banks had more than 10 billion euros in private deposits, of which nearly one billion correspond to Spain. Is it a lot or is it a little? It depends on their liquidity needs. “If they embark on a competition for deposits, profitability will rise”, he concludes.
The truth is that Spain is lagging behind in terms of remunerating the liability. The average return in April stood at 1.33%, compared to the euro zone average of 2.27%. The Bank of Spain says that 44% of this gap is due to the fact that national banks need less liquidity and another 16% to the “degree of concentration” of the market, which is greater than the European average.
Regarding liquidity, Spanish banks show higher rates than their European competitors. They go, according to a report from Alvarez
The Bank of Spain’s latest financial stability report made reference to this aspect. Liquidity is high, but has decreased in recent months “due to the reduction in TLTRO operations”. “To the extent that this ratio is above the required 100%, entities would not need to go to the short-term market to cover liquidity outflows”, he says.
The AEB banking association has alluded to an additional aspect: granularity. This word refers to the composition of the deposit bases of Spanish banks, which, unlike those in other countries, are characterized by being more fragmented among small customers. It is a strong point against banks such as Silicon Valley Bank, which concentrated deposits in a few hands, and is also a deterrent to large commercial campaigns.
So far, the smaller banks have been the ones who have been encouraged to come up with more aggressive deposit-taking offers. MyInvestor has just launched a deposit at 2.75% for three months, the most profitable of those covered so far by the Spanish Deposit Guarantee Fund, while ING boasts of having made progress thanks to remunerating savings and having been able to quickly capture 1,300 million euros in Spain in a short time.
“What happens in the future will be what the customer says,” CaixaBank president José Ignacio Goirigolzarri told Santander. “Term deposits are arriving and in a progressive manner,” 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 which will now be leaving its balance sheet at a rate of 28 billion per month, according to DWS.
