UPDATE 1-Spain banks' ECB borrowing inches lower in January

Thu Feb 14, 2013 4:54am EST

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MADRID Feb 14 (Reuters) - Spanish banks borrowed less from the European Central Bank in January than in December, marking five straight months of easing reliance on the central bank for funds as investors return to the country's debt markets.

Spain's lenders borrowed 346 billion euros ($465 billion) from the ECB in January, down slightly from 357 billion euros in December, according to Bank of Spain data published on Thursday.

That was well below the peak of 411 billion euros loaned by the ECB to Spanish banks in August but more than double the 161.4 billion euros in January 2012.

Spanish banks accounted for 30.7 percent of euro zone banks' emergency borrowing from the ECB last month, the data showed.

A real estate bubble that burst five years ago has crippled Spain's lenders, while a prolonged recession and fears the country may need a sovereign bailout meant international debt markets had been practically shut off to banks and corporates.

But Spanish bank emergency borrowing from the ECB has fallen steadily since the bank's President Mario Draghi pledged to buy sovereign debt of euro zone countries that requested aid, creating a backstop against the investor sell-off.

Easing market conditions have also meant some Spanish lenders have starting repaying crisis loans taken from the ECB at the end of 2011 and beginning of last year.

The yield premium investors demand to hold Spanish 10-year debt rather than low-risk German bonds was around 347 basis points on Thursday, well off last year's highs of over 650 bps.

Spain's government has rushed to take advantage of the improved market conditions, issuing around 19 percent of its full medium- and long-term debt target in the first six weeks of the year, while many companies have also issued bonds.

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