Market stress may pressure Spanish banks despite strong liquidity- cenbank

By Jesús Aguado

MADRID (Reuters) – Spanish lenders could find themselves affected by higher global risks, such as rising costs of funding and liquidity stress, resulting from the recent banking sector turmoil that has hammered share prices, the Bank of Spain said on Wednesday.

“This may put under negative pressure the favourable financial situation with which (Spanish lenders) started 2023,” the central bank said in its semiannual financial stability report, underscoring their strong liquidity levels.

But it warned the uncertainty could lead to an increase in the cost of equity in the sector in the coming quarters, while the materlialisation of macro-financial risks may have a significant negative impact on banks’ profitability and solvency.

The central bank urged them to pursue an adequate and early recognition of risks to preserve confidence in the sector, but noted that risks to the Spanish financial system were limited due to a lack of any significant direct exposure to banks at the heart of the global turmoil.

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 also highlighted positive traits of Spanish banks’ business model such as a diversified deposit base, with the bulk of retail clients’ deposits covered by a guarantee fund.

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.

($1 = 0.9158 euros)

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