LONDON: Spanish banks' reliance on ECB funding may fall further from 3-year lows in the near term as stress in the money markets showed little signs of intensifying despite growing talk of a possible Greek debt restructuring.
Data on Tuesday showed Spanish banks borrowed 44 billion euros ($63 billion) from the European Central Bank in March, the lowest level since January 2008, as funding conditions continued to improve and analysts say it could fall further in April.
Growing expectations that Greece will have to restructure its debt has pushed Spanish government bond yields higher, with some bondholders fearing an impact on Spanish banks due to their exposure on Greece.
But analysts said the crisis would have to intensify much more to have tangible effects in money markets as well.
Banks will continue to lend to each other as long as they do not believe their counterpart will default and analysts say systemic fears may not kick in until concrete steps are taken towards restructuring.
"(ECB borrowing figures) can rise pretty quickly when you have the stress, but they will not rise beforehand," said Benjamin Schroeder, strategist at Commerzbank.
"We haven't seen a reaction to the stories because markets don't think they can see a Greek restructuring in the coming months."
This leaves little to stop Spanish borrowing figures continuing their gradual downward trend as the economy improves and the sovereign continue to distance itself from Greece, Portugal and Ireland.
HELPED BY INCREASED REPO ACTIVITY
The repo market -- an alternative source of secured funding where collateral is sold with an agreement to be repurchased at a later date -- is further evidence that Spanish banks are increasingly able to fund themselves.
"Most of all, Spanish banks continue to fund themselves actively through repo markets, as they have been seen doing since LCH.Clearnet launched its Spanish GC (general collateral) repo clearing service last summer," said Chris Clark, analyst at ICAP in London.
"The prospect of some Greek government debt restructuring is not likely to make an immediate difference in terms of interbank lending," he said.
However, the Spanish banking sector will not get rid of its reliance on the ECB too fast, and it would be a gradual process since only the biggest banks are seen comfortable in tapping capital markets for funds.
"You still need to distinguish between better positioned Spanish banks and the smaller cajas," said Maureen Schuller, credit strategist at ING.
"This year, we haven't seen a lot of funding activity in the market by Spanish issuers outside names such as Santander, BBVA and La Caixa. For the weaker positioned Spanish saving banks it would still be difficult to come to the market and the risk premium they would have to pay is still substantial."
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