Debt of 6.5 billion euros to the ECB will force New Bank to go to the market, warns Moody's – The Economic Journal

Debt of 6.5 billion euros to the ECB will force New Bank to go to the market, warns Moody's - The Economic Journal

The New Bank will have to go to the market to get back the € 6.5 billion it owes to the European Central Bank (ECB), a Moody's report on Iberian banking added.

In the document, which focuses on the impact of the TLTROs granted by the ECB to banks in the Iberian Peninsula, the rating agency said that the institution led by António Ramalho is "heavily exposed the TLRO debt and owes 6.5 billion euros, or the equivalent to 12.6% of total assets at the end of June 2018. "

The report also noted that "the bank has not yet publicly disclosed its ECB refinancing strategy", but taking into account the institution's liquidity coverage ratio (CRL) "of 138%, it will have to use the markets to replace the funds TLTRO ".

Conversely, according to Moody's, Caixa Geral de Depósitos (CGD) is the only Iberian bank to have repaid the ECB in full, by two billion euros, "before the date to do so."

The report analyzed the impact of this date between June 2020 and March 2021 when European banking institutions are required to repay the ECB and concluded that profitability will be "moderately affected."

Moody's also recalled that Iberian banking, together with the Italian and Greek banks, benefited most from the ECB's financing program, with Portugal accounting for 4.8% of the assets held by the banks and in Spain at 6 , 5%. The euro area average is 2.5%.

The ECB has since June allowed institutions to repay these loans voluntarily, but for the moment only Caixa Geral de Depósitos has done so and Moody's does not expect any more banks to do so.

At the end of September this year, according to the rating agency, Portuguese and Spanish banks had received 192 billion euros in ECB funds.

Moody's noted, however, that both Portuguese and Spanish banks continued to benefit from an unleveraged balance sheet and more stable deposits, which limits the impact on liquidity, despite higher costs in financing outside the TLTRO framework.

At the end of June, banks were already charging more fees and commissions, and in the Portuguese case the increase, on an annual basis, was 5%. By 2019, the forecast is for more raises that will help offset the end of these programs.

The strategies to return the money to the ECB vary, Moody's said, going not only to the market but also to liquidity cushions.

The rating agency pointed out that, overall, Portuguese banking health indicators were better, with a lending / deposit ratio of 89% in June, from 135% at the end of 2011.

The CRL for the same period this year was on average 182%, well above the required 100% minimum and the EU average of 148%.

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