European Central Bank president Mario Draghi warned this afternoon of increasing fragmentation in international financial markets and suggested that it would be the main issue that the ECB looks at when deciding to intervene in government bond markets. The two symptoms that Draghi raised were the share of cross-border lending – down to 40% from 60% in mid-2011 – and falling non-domestic interbank deposits, which are at their lowest level since 2008. One other possible symptom is a falling trend in Spanish bank deposits, even at the largest banks, particularly in flightier corporate deposits. Courtesy of Citi:
| “While headline group deposits at both BBVA and Santander declined only 1% qoq, corporate and investment banking deposits declined 13% qoq at BBVA and 11% at Santander. Large corporate and institutional clients, who are more sensitive to heightened market risk and deteriorating counterparty credit risk, withdrew funds from the large Spanish banks” |
The withdrawals are significant because they indicate a lack of confidence among corporate depositors, but there is also an impact on Spanish bank deleveraging. This is particularly pronounced in view of continued loan growth:
| “Given the high sovereign yields, banks have prioritised reducing wholesale funding. But the CIB deposit outflows have complicated the Spanish banks' deleveraging plans. Loan/deposit ratios have risen noticeably for the CIB businesses of the large Spanish banks. BBVA's CIB LDR increased 34ppt during 2Q12 alone and 53ppt over the past year to 164%; for Santander, CIB LDRs increased 19ppt qoq and 28ppt yoy. HSBC, by contrast, had a relatively stable CIB LDR (92%, 1H12).” |
Just one more thing for Spanish banks, and Draghi, to worry about.