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DBRS: Continued volatility in Spain could have impact on bank funding

Rating agency DBRS has warned of a potential impact on banks' funding if the political turmoil in Catalonia continues to drive volatility in the Spanish market.

However, recent measures by some Spanish lenders to move their headquarters out of the region should help boost the confidence of investors and bank customers, it said in a report on banks' exposure to Catalonia.

On Oct. 5, Banco de Sabadell SA announced it would move its headquarters to Alicante from Barcelona, while CaixaBank SA quickly followed suit deciding a day later to relocate to Valencia.

Both banks suffered sharp falls in their shares prices following an Oct. 1 referendum on independence in the region, a vote that was ruled illegal by Spain's constitutional court and has seen rising tensions between Madrid and Catalonia in what is the worst political crisis to hit Spain since a failed coup by the army in 1981.

"DBRS expects volatility to persist until the political situation stabilizes in Catalonia and this could potentially impact the banks' funding profiles," DBRS said in its report. "However, it also considers these actions are indicative of the contingency plans that these banks are executing to safeguard their franchises and funding positions."

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DBRS analyst Maria Rivas said it was too early to say what the concrete impact on funding would be, but said the agency would be "monitoring all aspects of the banks' funding profiles: deposits outflows and inflows, access to wholesale markets, utilisation of central bank funding."

"At this stage we think that maintaining a strong funding and liquidity profile will be the key priority. Future challenges would depend on the political and economic developments in Catalonia," Rivas said in an email.

Catalonia accounts for 20% of Spain's gross domestic product, which means several, major Spanish banks have significant exposure in the region.

Branch networks

According to DBRS, 30% of Sabadell's branches and a similar percentage of those of another large Spanish lender, Banco Bilbao Vizcaya Argentaria SA, are located in Catalonia, while 26% of CaixaBank's and 14% of Santander's are located in the region.

Sabadell has the largest risk exposure to the region, with CaixaBank in second place and BBVA in third place, DBRS said.

"Reported data on risk exposures show that BBVA, CaixaBank and Sabadell have the largest risk concentrations in Catalonia, representing around between 20% and 27% of their total risk exposures in Spain," the rating agency said in its report.

"For the three banks with the largest presence in Catalonia, these exposures represent a slightly larger proportion than Catalonia’s contribution to the national economy," DBRS said.

"Other banks have smaller relative exposures. However, this proportion is lower when taking into consideration international as well as domestic exposures."

Both BBVA and Santander have a strong international presence, particularly in Latin America and are therefore less exposed to tailwinds on the domestic market.

There have been concerns that the continuing Catalan crisis would lead to bank customers withdrawing deposits and moving them to another region in Spain.

Rivas said, however, it was too early to say what the impact of deposit withdrawals may have been.

"We have looked in the report at the size of the banks’ branch networks in Catalonia as an indicator of the size of their deposits," she said. "But we think it is too early to speculate on the potential size of any impact, as banks have a number of tools to manage their liquidity," she said in an email.