Banks are still collecting 71% more liquidity than ECB requirements

Spanish banks have excess liquidity of 71% above the minimum requirement demanded by the European Central Bank (ECB) which is delaying Deposit bonus. In recent months, the entities have been in the spotlight due to the dearth of offer to reward customer savings despite the constant price hike by the admin.

Monetary policy has caused the price of money to rise from 0% to 4% in just one year, which generally makes credit more expensive and Increase the bank’s revenue. But the Spanish entities have not made moves to replace the deposits, unlike European banks, arguing that there is excess liquidity in the system.

According to data provided by the European Central Bank, the Spanish bank is the bank with the largest excess funds, measured by the liquidity coverage ratio (LCR) among countries in the economic environment of 171% (the minimum required by regulations is 100%), accounting for about 274,000 million euros. This is a higher level than comparable financial systems such as Germany (153%), the Netherlands (150%) or France (148%).

And so, Banks explains that When these reserves are depleted, Banks will start reimbursing deposits. One of the main ways banks have to finance themselves is by acquiring customers’ savings. With this money they can later grant credits.

Financial sources consulted detail that the current context is atypical due to several factors causing a slowdown in the launch of deposit offers.

reserve drain

In the first place, they explain that during the Covid-19 pandemic, families have made a lot of savings, which must be reduced with inflation and rising financing costs. Banks have also increased their reserves through favorable conditions financing lines enabled by the European Central Bank, known as TLTRO, to ensure an influx of credit in the midst of the health crisis. Therefore, their reserves are loaded with money. Once the banks return the outstanding amount, about 35,000 million, this excess liquidity will gradually decrease.

This is a temporary situation that will be resolved while the ECB absorbs liquidity. But with the level of funds accumulated by banks, the pressure is now to replace deposits is less,” the same sources point out.

On the other hand, entities refer to anomalies that More than 90% of current deposits are on demand. The Bank of Spain itself indicates in a recent report that almost all deposits in Spain (93.9%) are concentrated in demand deposits, while in 2013 most of them were time deposits (53.3%).

In this sense, the entities have been paying clients seeking a return on their capital to contract other investment products, such as funds, retirement plans, or treasury bills, which promise a higher return than the deposits themselves. With the conversion being made from the accounts to this type of product, the liquidity is also normal. “Demand deposits are more of a liquidity tool for payments and domiciliary receipts than they are savings. The diversification of savings in Spain is undervalued compared to Europe and is another factor slowing the supply of deposit bonus,” explained the sources consulted.

And third, banks also argue that although they do not offset customer liabilities, they do not make credit as expensive as banks in other European countries. According to European Central Bank data, loans to businesses in Spain are marketed at an average of 4.49%, which is slightly lower than 4.56% in the European Union, 4.65% in Germany, or 4.81% in Italy. Similarly, variable rate mortgages are selling at an average rate of 3.47% compared to the average of 4.03 in the EU, and fixed rate mortgages are selling for 3.04%, just below the average of 3.13% in member states.

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