Five years after pointing out hole in Bankia, IMF has re-examined Spanish banking. The result is that entities are better prepared and more resilient. However, it warns of its excessive dependence on liquidity of ECB, its high exposure to public debt and low profitability. In Fund's view, withdrawal of Eurobanco injections could increase financing costs of entities. In addition, it warns that banks need about 22 billion to improve quality of capital, according to test closed to December 2016 which includes Popular.
The International Monetary Fund (IMF) no longer points as dangerous to any entity as it did in 2012 with Bankia. However, in its five-year report on Spanish banking, IMF does warn of persistence of risks in financial system. Some institutions remain "vulnerable," he concludes, with criticism of system that is not new.
The analysis of institution emphasizes high dependence of Spanish banks on liquidity of ECB. 6% of its funding comes from Eurobanco, he recalls. In a single entity, which does not cite, this figure amounts to 17% at closing of 2016. While recognizing that sector funding has improved considerably, IMF has doubts about banks ' ability to get funding in a context of market tensions.
According to fund, bank took advantage of ECB's injections to improve its profitability by buying government bonds. It is what in jargon is known as carry trade: borrow at 0% to acquire titles that worshipped up to 3%. Although IMF points out that se operations have now been reduced, it argues that "in this context substitution of ECB funding for wholesale market [ever more expensive] would be detrimental to stability of Spanish banks." The agency even adds that "y could suffer from liquidity tensions if ECB starts cutting supply." However, official Spanish sources defend that Frankfurt will be able to manage this withdrawal of supports gradually, which would lessen negative effect for entities.
On or hand, bank exposures to public debt could lead to losses, report emphasizes. The reason: Bond portfolios will lose value as rates rise. According to fund, Spanish public debt portfolios are a Achilles ' heel even in most likely anticipated economic scenario. So I would like to give authorities a close follow-up to this problem.
Sources of administration make it possible for banks to hold titles until maturity so as not to suffer so many losses. Or official sources insist that ECB will make a very staggered rate hike, allowing banks to gradually assume losses.More information
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The IMF also highlights that 14 most important (including Popular) entities rely heavily on lower-quality capital instruments such as trade funds and deferred tax credits (future tax deductions for past losses ). These red numbers come from bad years of crisis and ir deduction can be targeted as part of ir regulatory capital. According to calculations of organism, Spanish banks will have to raise in 160 basic points ir regulatory capital to comply with new legislation that will enter into force in 2019, called CRD IV in sector, which demands to replace se instruments of worse Quality for ors with greater capacity to absorb losses. This means increasing its capital by around 10%, that is, about 22 billion, according to financial sources. After absorbing BMN, Bankia has a high volume of tax credits.
The stress test carried out analyses banks on three scenarios: economic normalcy, stagnation and hard recession. In a crisis situation, "several banks" were unable to meet Minimum Capital Requirement and "a few" suspended higher-quality capital requirements. The note concludes that results were "disparate."The fund puts pressure on financial supervisors
The European Central Bank (ECB) took over reins of bank supervision more than two years ago. Frankfurt and European Banking Authority (EBA) have been strengned in personnel and means to be real authorities of sector; They can no longer claim that local supervisors in each country are responsible for problems that entities are still dragging.
The IMF's last November stress test, and recent bankruptcy of Banco Popular, have led people responsible for European agencies, who call for anonymity, to question lack of severity with which supervisors examine European banks, which still They drag problems a decade ago. The IMF alerts on Spanish sector should be known in ECB, especially since it has two senior executives from Bank of Spain in supervisory Dome: Ramón Quintana, director general of single Monitoring mechanism (MUS), and Margarita Delgado, Deputy director general of aforementioned agency, dependent on Frankfurt.
But problem is not only Spanish: Banks from or countries, such as Italy, Portugal, Greece, Cyprus, or even Germany, also offer doubts to market. Following IMF's review, stress tests that EBA will start shortly, and publish in November, are under pressure and analyzed with a magnifying glass to check rigors of supervisors.11 billion deficit
In adverse scenarios, capital shortfall amounts to 1% of GDP, which is about 11 billion. The IMF does not mention entities. He doesn't give clues like he did in 2012. Neverless, it should be remembered that test was made with closing of 2016, and that since n have happened very significant facts: bankruptcy of Popular that ended in hands of Santander after expanding capital in 7 billion; The absorption of BMN by Bankia; The exit to Unicaja bag and 500 million that has captured Liberbank to strengn. These improvements have caused much of deficiencies found to have been rectified, according to official sources. "It's a overcome situation. Only Santander has already collected 7 billion, "y say.
As far as profitability is, this remains below cost of capital and some banks show less capacity to absorb additional tensions on ir margins, IMF says. However, men in black admit that profitability of Spanish entities has evolved better than that of ir European peers and is also affected by having to provision more than ir competitors. In stress tests, profitability would fall from 0.8% over risk-weighted assets to a fork between-0.6% and a-0.8% in adverse scenarios.
Although two internationalized banks, Santander and BBVA, achieve margins greater than rest, thanks primarily to Latin America, se two entities have a slightly lower profitability of banks considered globally systemic, The IMF points.
And finally remember that bank has well provisioned credits, with a ratio of 58%, in line with European average. However, Fund alerts that five entities have one of only 40%. A decade after financial crisis, banks have improved but still drag problems.