MNC Treasurers eager to avoid the cost of hedging by borrowing in the countries where they do business might be thrilled with last week’s news that Spain has emerged from recession. The country’s three main banks, Santander, BBVA and Caixa, have seen their CDS spreads tighten by about 100 basis points since the beginning of the year, according to Markit. That might not translate into willingness to lend.
Markit reports that the Spanish sovereign CDS hit 185 bp last Wednesday, the tightest level since August 2010. Spanish business confidence has risen and the new positive GDP report – up 0.1 percent – makes it seem that the economy is on the mend.
Note however that over a quarter of the working population remain out of work, and the banks reported that net interest income was down, while nonperforming loans were up.
The problem with Spain’s banks, like many of their overseas competitors, is that they face tight leverage limits and capital requirements under the Basel rules and others coming into effect. A truly strong relationship might be revived under the new situation, but it is hard to imaging bank relationship managers banging on doors to get more business.