Spanish Banks to Face Continued Funding Challenges, Moody’s Says

Spanish banks will still face funding and liquidity pressures in coming months even though some were able tap bond markets earlier this year, Moody’s Investors Service said.

“We still consider that liquidity and funding will continue to constrain banks’ credit profiles over the coming months,” Pepa Mori, a Moody’s senior analyst and author of a report on Spanish banks published today, said in a statement. “While recognizing the decline in the system’s overall financing requirements, Spanish banks continue to display wholesale funding reliance at a time when accessibility to long- term wholesale markets, while improving, has not normalized.”

Some larger Spanish banks have been able to sell senior and covered bonds this year, while lenders have also cut their reliance on funding from the European Central Bank and maintained household and company deposits, Moody’s said.

Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest lender, led banks opening bond issuance in Europe when it sold 1.5 billion euros ($2 billion) of five-year bonds. Banco Santander SA, Banco Popular Espanol SA and CaixaBank are among other lenders that have tapped debt markets this year.

Even so, expectations that industry operating conditions will remain “negative” over the next year will prevent the return to normal funding, the ratings company said.

Early repayments by Spanish banks of emergency three-year loans has decreased the industry’s reliance on ECB funding by about 41 billion euros ($55 billion), or 12 percent of borrowings, as of the end of 2012, Moody’s said.

To contact the reporter on this story: Charles Penty in Madrid at cpenty@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net