Spanish Banks: An Analysis of Sovereign Exposures

The commentary analyses the sovereign exposures of the 10 largest Spanish banks, and the potential risks to these banks resulting from these exposures.

Summary highlights from the commentary include:

• The Spanish banking system has a level of sovereign exposures slightly below the European average (around 12% over Total Assets or EUR 442 billion).
• However there is a significant heterogeneity within Spanish banks’ exposures, ranging from 7.5% to 27.1% of total assets.
• Domestic exposures represent the bulk of these (57% of total sovereign exposures). But Spanish banks also holds a significant amount of Italian, Mexican, Brazilian and US sovereign exposures (reflecting the international operations of large Spanish banks).
• The Spanish banking system has a high level of sovereign-related assets accounted for at amortised cost (around 60% of the total), protecting the bank’s capital ratios against movements in bond prices, as these bonds are not marked to market.

“Despite the current market volatility of sovereign bonds which also translate into higher wholesale funding costs for banks, we consider Spanish banks’ sovereign exposures as manageable, given that in most cases the size of the exposures are moderate and the accounting treatment of the majority of them means that price variations will not impact regulatory capital.” said Pablo Manzano, Vice President from the DBRS Morningstar Global Financial Institutions team.