Spanish banks drastically cut exposure to sovereign debt

Sector sold 22.4 billion euros in government bonds in December Lenders gearing up for ECB stress tests later this year

Madrid - Jan 29, 2014 - 16:51

Spain’s banks in December picked up the pace at which they have been offloading their holdings of sovereign debt ahead of the solvency tests they will be subjected to by the European Central Bank later this year.

According to ECB figures released Wednesday, Spain’s banks took advantage of improved market conditions to sell 22.4 billion euros worth of government bonds, more than double the 10 billion they sold in November and October’s 8.9 billion. After the latest sell-off, the exposure of Spain’s banks to sovereign debt stands at 272 billion euros.

The extent of European banks’ exposure to sovereign debt will be one of the key features in the stress tests to which they will be submitted. If banks are required to write down the value of sovereign debt not being held to maturity to current market levels, this might entail them having to increase their capital to enhance their solvency.

Italian banks reduced their holdings of sovereign debt in the last month of 2013 by 15.7 billion euros, French lenders by 21.2 billion and Portuguese banks by 4.3 billion.

Separately, deposits at Spanish banks rose by 0.06 percent from the previous month to 1.496 trillion euros.

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