Turbulence in the global banking system. Two rescues of two banks in less than ten days returned attention to the sector. In addition, pronounced falls in the stock market make us return to the financial crisis of 2008. But although it seems to be the same story, but 15 years have passed, and the situation has changed. Spanish banks are in a good position with liquidity and profitability, despite the fact that they lost 25 billion euros in the stock market.
One of the main findings of the Banking Union’s report “Challenge Between Superimposed Crises” by PWC indicates that European and Spanish banks in particular are in a crisis situation. “better situation than ever”in terms of solvency, asset quality, liquidity and profitability to counter the current market situation.
On March 9, Silicon Valley Bank filed for bankruptcy after announcing a $1.75 billion capital increase. The goal was to deal with the $1,800 million (€1,704 million) loss previously recorded from the sale of a $21 billion (about €19,671 million) shortfall fixed income portfolio. Shares fell 60%. This crash spread throughout the global stock markets. Fear of a contagious effect has turned the major stock indexes red.
One of the main problems of the Californian company, whose business model is very specific, was that it invested excess liquidity in long-term Treasury bonds, assets that have been affected by rising Federal Reserve interest rates in recent months. So, the bank was not in the best position face a situation of rising interest rates and slowing credit growth.
When the water seemed calm, Credit Suisse collapsed. Shares of the Swiss company fell 25% after it discovered a “significant weakness” in its internal controls on financial information and that it is developing a plan to fix it, including strengthening controls and risk management. In addition, the largest shareholder announced that he would not expand his participation in the enterprise.
This forced Credit Suisse to approach the Swiss National Bank for a loan of about $54 billion. The European Central Bank has asked European banks to disclose information about the Swiss company and an urgent meeting. It was concluded that there is no risk for European banks.
No Spanish bank has a relevant relationship with Credit Suisse. But its fall along with the fall of SVB led to their sharp fall in the stock market. Since March 9, six Spanish banks have lost 25.3 billion euros. In Friday’s session, Banco Santander fell 4.6%; BBVA, 3.57%; Banco Sabadell fell 3.44%; Bankinter, 2.7%; Caixabank – 1.8%, and Unicaja – 1.7%.
There are several indicators that show that the position of the Spanish banks is strong. One of them is the liquidity coverage ratio, which reflects the ability of the European financial sector to meet its short-term obligations. The average short-term liquidity ratio (LCR) in Europe is 165%, while in the US it is 118% and in Spain it is 184%. According to a report prepared by Autonomous Research, which uses data as of the end of Q4 2022, major Spanish banks are well above their 100% liquidity coverage and net stable funding ratio requirements.
Among the big banks, he stood out kaishabank, with a liquidity coverage ratio (LCR) of 291%, followed by Sabadell, with a coefficient of 234%. Behind, bankinter had a CSF ratio of 218%, santander161% and BBVA 159%. This LCR measures the relationship between the holdings of high-quality liquid assets that each institution holds and the cash outflows they may experience during a 30-day liquidity shortfall period. The data used by PWC in the report refers to the third quarter of 2022, when the liquidity ratio of European banks was 162%, twenty points more than at the end of 2016.
But where the improvement was most significant, and partly unexpected, was in the quality of the assets of European banks. Between June 2015 and September 2022, the NPL ratio decreased from 7.5% to 1.8%. “Supervisory pressure on institutions to clean up their loan portfolios has been very strong and sales, securitizations and loan repayments have skyrocketed as a result,” they comment in the report. Doubtful loans and delinquencies were predicted to rise, but they continued to fall.
The problem between overlapping crises is the heavy hidden losses accumulated by the sector in sovereign government debt following the rise in fixed income asset yields, according to a Banking Union report. Losses in the valuation of Spanish banks’ portfolios are significant due to their high exposure to these titles.. In June 2022, they retained $500 billion in sovereign debt.8% more than at the end of 2021. Of this amount, 52% accounted for the public debt of Spain.
Source: El Independiente