BdE released data on financing of the Eurosystem, basically the BdE balance sheet and data on financing by credit institutions. Regarding the BdE balance sheet the latest data, the first after the ECB announcement of the OMT are quite positive:

Both MRO and LTROs were lower in September, a total reduction of €11.7bn which is a significant amount. This was reflected in the Target2 balance which dropped by €8.77bn to €419.85bn (still a very large deficit) as well as in the banknotes demand which was €2.03bn lower. Deposits to general government on the other hand registered a new low of €4.04bn (a €2.4bn reduction), pointing to government cash troubles, while credit institutions deposits and current accounts were €1.33bn lower. Since funds at the deposit facility do not earn interest anymore it seems that banks used the Target2 inflows as a source of funds to lower their loans from BdE, rather than to increase their liquidity buffers.

The same data release also provides statistics on loans to households and non-financial corporations. Both series show a clear pattern of negative credit growth. Effective flows for household loans (till August) were -€22.8bn (compared to -€21.48bn for the total of 2011) and -€48.29bn for non-financial corporations (compared to -€25.41bn for 2011). In total, the negative flow is equal to €71.09bn which points to an annual flow of -€100bn (more than double that of 2011). That’s around 9.5% of GDP which coupled with a current account deficit of 3% GDP equals to a drag of almost 12.5% of GDP. Since the annual budget deficit will probably register close to 7% of GDP, the data show that the 2012 recession will be quite deep. In my view, the -2% projections are actually optimistic since the drag from private debt repayment is extremely large and government austerity measures quite heavy. Just for comparison, during 2011 the effective flow was -4.4%, the current account -3.5% while the government deficit 8.5% with the real GDP growth rate at 0.4% so this extrapolation seems reasonable.

Lastly, data is also available on profit-loss accounts of credit institutions till 2012Q2:

What is evident is the fact that profit before tax has turned strongly negative since 2011Q3, around 2-2.5% of the adjusted average balance sheet. Unless there’s a strong rebound in economic activity and loan demand or if capital outflows totally reverse course I ‘m not so sure why someone would look forward to Spanish banks posting profits in the near future, something which makes their capital needs larger.

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