The end of the pandemic was a relief for the CDS (credit default swaps), which measure the risks of default of a company, of the large Spanish banks. These contracts fell to their lowest level in the last five years. And the banks still had to deal with the negative rates of the European Central Bank (ECB). However, the turn in its monetary policy has not produced improvements. Spanish banks have recovered from the hit by Credit Suisse, but the constant threat of a spike in bad debts is penalizing them at the end of the year.
The CDS of the largest Spanish bank, Banco Santander, closed this week at around 61.7 points, far from the 30 points they marked in the summer of 2021. Before the pandemic they reached 25.79 points. At that time, the world economy in general, and the Spanish economy in particular, was beginning to recover from the crisis caused by Covid, partly due to the arrival of vaccines. Likewise, in that same period the ECB decided to lift the total prohibition on the distribution of dividends by the banks, which approved ambitious plans starting in September, based on the results of that year.
However, the adoption of a more restrictive monetary policy by the ECB has increased investors’ perception of risk towards banks, precisely because a tightening of financing conditions implies an economic deterioration and also because it presupposes that companies and The most vulnerable families would have serious problems repaying their loans. In fact, the ECB has already seen some deterioration in the third quarter compared to the minimum levels of the year. Bank delinquency remained at 3.56% in September after rising in August.
At BBVA this behavior could also be seen in the CDS. In September 2021, it set a low of 31.6 points, to exceed 100 points when the beginning of a financial crisis occurred in March triggered by SVB, Firts Republic and Credit Suisse. After clearing up the doubts, the default risk of the bank based in ‘La Vela’ has been around 62.3 points.
Entities with greater exposure to the retail business experience the same behavior. Caixabank, which has a strong exposure to the mortgage business in Spain, closed the week with a CDS level at 63.8 points, while we must go back to 2021 to see the lowest level in the last five years: 37. 48 points.
Banco Sabadell, on the other hand, is the only Spanish bank that has CDS above 100 points. After the bankruptcy of the American banks and the rescue of the Swiss bank by UBS, it has managed to lower them to 139.44 points. Instead, its lowest level of the last shine was 66 points, just before the pandemic broke out. In 2021, when the light began to be appreciated, it moved around 80 points.
Bankinter, which is an entity with a different customer profile, also maintains the risk of default above the minimum set in 2020. Thus, according to the data collected, it moves at 69 basis points, although it was one of the banks most affected by the financial crisis in March, when its CDS shot up to 180 points.
Double-digit rises in the stock market
Despite this evolution of the CDS, the situation on the stock market is totally different if we take a look at the last five years, mainly because the increase in the price of money by the ECB has boosted the income and profits of the banking sector and therefore extension of their stock market listings.
Thus, in the last five years BBVA shares have risen 86% to above 8 euros. In the case of Banco Santander, its behavior on the stock market has been more erratic, since it has only recorded an increase of 0.16%. The entities most exposed to the retail business have revalued by double digits. In the case of Caixanbank this increase is 23.27%, for Banco Sabadell it is close to 30%, while Bankinter registered an increase of 25% in the last five years.
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