EU-DIGEST: Spain’s lenders rely on ECB as depositors flee

9/18/12

Spain’s lenders rely on ECB as depositors flee - by Charles Penty

Spanish banks, already hooked on cheap European Central Bank (ECB) loans, are haemorrhaging deposits as the government debates whether to seek a bailout.

Households and companies drained e26 billion (R280bn) from Spanish bank accounts in July, driving the ratio of loans to deposits among lenders to 187 percent from 183 percent in December and 182 percent a year earlier, according to the Bank of Spain’s data. Shrinking deposits undermine the ability of banks to support economic growth by lending to companies and consumers.

“There are significant outflows of deposits now in Spain and they won’t start coming back until people are sure they’re safe and that Spain is secure,” said Simon Maughan, a financial strategist at Olivetree Securities in London.

Spain’s financial industry is already backstopped by Europe to the tune of e100bn, and is reliant on e412bn of gross borrowings from the ECB. Investors demand 423 basis points more to own CaixaBank bonds maturing in 2015 than German bunds of similar maturity, up from a premium of about 384 when the bank’s bonds were sold in January.