Spanish financial institutions are having increasing problems in borrowing from foreign banks because of concerns about Spanish sovereign debt, the Expansion daily reported on Thursday.
The newspaper based its report on unnamed sources in several Spanish financial institutions to the effect that foreign banks were increasingly reluctant to lend to Spanish banks. Local press also followed up a report in The Wall Street Journal that one of the leading Spanish banks, BBVA, had been trying unsuccessfully for a month to refinance one billion dollars (815 million euros).
Expansion said foreign banks were reducing the amount they lent to banks based in those eurozone countries worst affected by heavy public deficits and debt. Meanwhile in Belgium, insurance group Ageas, formerly part of Fortis, said it had reduced its exposure to government bonds issued by countries in southern Europe by 4.8 billion euros between May 12 and 21, and that its holdings now stood at 9.1 billion euros.
The head of the company Bart De Smet said that this was because of “the increased uncertainty which reigns on markets.” In total, since January 1, Ageas has sold bonds issued by southern European countries worth 8.8 billion euros, with Greece accounting for 2.1 billion euros, Italy 4.8 billion euros, Portugal 1.7 billion euros and Spain 0.2 billion euros.
On May 21, of its remaining holdings of such debt worth of 9.1 billion euros, Greece accounted for 2.2 billion euros, Italy 3.8 billion euros, Portugal 1.3 billion euros and Spain 1.8 billion euros. The money from the sales had been invested mainly in bonds issued by Belgium, Germany, The Netherlands and France.
De Smet said “we are convinced that investors and clients will be reassured by these initiatives and by our solvency.” In Spain, the annual deficit on the public accounts, comprising central government, welfare and local government budgets, shot up last year to 11.2 percent of gross domestic product, far exceeding an EU ceiling of 3.0 percent.
The Socialist government, under pressure from the financial markets and the European Union, has adopted strong and highly unpopular austerity measures to try to reduce the deficit to 6.0 percent of output from 2011. Greece, which has been rescued from debt default with funds from the rest of the EU, including Spain, and the International Monetary Fund, and Portugal, are also the subject of particular concern over the state of their public finances.
However, banks in eurozone countries are able to obtain unlimited refinancing funds at a fixed rate from the European Central Bank since October 2008 following the collapse of US investment bank Lehman Brothers which severely curtailed activity on the interbank market. The ECB recently re-opened swap arrangements with the US central Federal Reserve bank to facilitate access for eurozone banks to funds in dollars.
Madrid, May 27, 2010 (AFP)
