The Bank of Spain figures the exposure of Spanish banks to Credit Suisse at 300 or 400 million

The supervisor is monitoring "very carefully" the liquidity of Spanish entities

MADRID, 28 Mar. (EUROPA PRESS) -

The general director of supervision of the Bank of Spain, Mercedes Olano, has estimated the direct exposure that Spanish banks have to Credit Suisse at 300 or 400 million euros, an amount that she has stated is "very marginal" and that is articulated through different types of products, including derivatives.

In the presentation of the 2022 Supervision Report, Olano has indicated that banks have been reducing their exposure even a few days before the collapse of the Swiss bank. Specifically, a Spanish entity managed to cancel a bond of around 300 million euros three days before the resolution of Credit Suisse.

The Bank of Spain has indicated that, with data from February, the average liquidity coverage ratio (LCR) of significant Spanish institutions was 175% and the median was 195%, while for less significant ones, the average LCR was more than 300% and a median of more than 400%. "Liquidity is fine with very up-to-date indicators," Olano said.

They also have to return around 100,000 million euros that the banks obtained through the TLTRO-III programs of the European Central Bank (ECB), but Olano has indicated that the entities have more than double the deposit facility.

"We are calm with this liquidity. We are talking about average figures. If this worsens, Spanish entities will have to face the same situation as the rest of the world entities, but they start from a very favorable starting point," Olano defended.

With respect to the reduction in liquidity that the return of the TLTRO-IIIs and the rise in interest rates may entail, Olano has indicated that he will reduce it, "but not as much as it seems." In this sense, he explained that when this liquidity is returned, the collateral assets that served as collateral for the loans granted by the ECB are released, and part of this collateral "is accounted for in the LCR", so that part of the this effect of reducing liquidity.

"Until recently, the drop in LCR was so small, there was so much liquidity in the system, that obviously the possibility of remunerating deposits was on the horizon, but not very close. What has brought this situation closer? Instability of the markets", he pointed out.

Regarding deposits, Olano has indicated that the available figures indicate a reduction because, on the one hand, the entities are diverting the savings of their clients towards investment funds, while inflation is reducing the income of families and companies that are they need to use part of their accumulated savings. Olano has affirmed that this situation is a "normal behavior" of the deposits.

However, it has warned that if inflation continues to be high, it can cause families and companies to have more difficulties to pay loans and those who do not have credits, have more difficulties in accessing financing. "It is an uncertainty that is on the table, it can happen," she has deepened.

During the presentation, Olano highlighted that the eurozone supervisors, including the Bank of Spain, are monitoring the evolution of liquidity "very carefully", although it is one of the supervisory priorities that was already included prior to financial turmoil for 2023 before the normalization of monetary policy.

Another supervisory priority for 2023, and which has become relevant after the sale of Credit Suisse to UBS, is the financing of entities, including that produced through contingent convertible bonds, known in the financial sector as 'CoCos '.

In this regard, he has defended the statements that the European authorities made after the Credit Suisse resolution changed the order of priority in the absorption of losses by shareholders and creditors, since AT1 bondholders took precedence over shareholders on the impact of losses.

"We have a very specific resolution system in which the 'CoCos' occupy their place of priority behind the capital. Some volatility has been created in the market, but we do not foresee major incidents," he stated in this regard.

The governor of the Bank of Spain, Pablo Hernández de Cos, has highlighted the solidity of Spanish banks in the face of the turbulence experienced in the markets after the collapse of Credit Suisse, although he has called for better governance for financial institutions, according to the same Supervision Report that has been presented today.

"The tensions in the financial markets derived from the difficulties in some regional banks in the United States and in Credit Suisse have contributed to the high level of uncertainty," the governor explained in the document.

The Spanish banking sector "faces this scenario of uncertainty and the most recent tensions in the markets with a high capacity for resistance and with solid capital and liquidity positions," De Cos added. Likewise, he recalled that the practical stress tests for banks confirm the resilience of the sector even in "very severe hypothetical adverse scenarios."

In this context, the head of the Bank of Spain has argued that it is necessary for supervisors to monitor the risks of entities to avoid a "possible materialization" of macroeconomic and banking risks that could deteriorate the solvency or profitability of entities financial.

"Entities must adopt, for their part, a prudent position and take advantage of the current increase in profitability to reinforce their resilience through an adequate policy of capitalization of profits and constitution of provisions", stated the governor.

Likewise, in his opinion, the challenges faced by entities show "the importance of having solid and effective governance". De Cos' recipe is that the governing bodies, which must have independent members, must be equipped with mechanisms, information circuits and capacities that allow them to carry out "deep" monitoring of the entity's management in order to issue opinions and make informed decisions.

"Conduct supervision should enhance the risk-based preventive approach of entities, which must be strengthened with effective communication", he emphasized.

In this regard, the deputy governor of the Bank of Spain, Margarita Delgado, has reported that one of the supervisory priorities this year is paying the "maximum attention" to correcting the "deficiencies" in the composition and functioning of the bodies of government.

At this time, "the magnitude of the challenges that financial institutions face highlights the importance of having solid and effective governance," Delgado remarked.