Spanish bank borrowing from European Central Bank falls further

With financial market conditions improving and the wholesale markets starting to open up again for local lenders, Spanish banks are gradually weaning themselves off their reliance on the European Central Bank for funding.

According to figures released Monday by the Bank of Spain, Spanish lenders’ borrowings from the ECB in the last month of 2012 declined 8 percent from November to 313.109 billion euros, the lowest level since May.

As a result, the proportion of total net funding to the Eurosystem of 884.094 billion euros by the ECB in December also fell to 35.4 percent from 38.5 percent the previous month. The lower funding requirements of the Spanish banks also reflect ongoing restructuring in the sector as branches are closed and employees laid off.

Lower risk premium

The fall in the amount of net debt taken on by the Eurosystem in December and deposits with the ECB both fell by 7.5 billion euros, suggesting that the interbank market may also be returning to normal.

Both CaixaBank and Banco Popular successfully tapped the wholesale markets last week. The spread between the yield on the Spanish 10-year government bond and the German equivalent was trading Monday at around 350 basis points. Spain’s risk premium hit a euro-area high of close to 650 basis points in July of last year.