May 14, 2020 / 10:18 AM / 15 days ago

UPDATE 1-Spanish banks' ECB borrowing rises to 16-month high in April

* Spanish banks borrowing at highest level since Dec 2018

* Monthly jump was the highest since March 2012 (Gives historical data and breakdown)

By Jesús Aguado

MADRID, May 14 (Reuters) - Spanish banks borrowed 167.5 billion euros ($181 billion) in April from the European Central Bank, a 17% increase from March to the highest level in 16 months amid the coronavirus pandemic, Bank of Spain data showed on Thursday.

The 24.5 billion euro monthly increase was also the highest since March of 2012, near the height of the financial crisis, when it jumped by more than 146.5 billion euros.

In August 2012, Spanish banks had taken a record 411 billion euros from the ECB, when the country’s financial turmoil reached a peak and weak lenders were granted a 41.3 billion euro aid package from Europe that summer.

Banks in the euro zone are expected to apply for cheaper long-term funding lines to help mitigate the impact from the coronavirus outbreak.

With financial markets in meltdown and borrowing costs soaring for the euro zone’s weaker members, the European Central Bank said in April it would make loans to banks even cheaper.

With the euro zone’s economy deep in recession, banks are bracing for a new wave of non-payments from clients hit by the coronavirus pandemic and subsequent economic shutdown.

In its latest move to support the sector, the ECB said it would now pay banks at least 0.50% and up to 1% if they tap its three-year loan auctions.

Under the new ECB’s schemes, they will earn 0.50% for one year from June by simply tapping the targeted longer-term refinancing operations (TLTRO) auction and 1% if they pass on the cash to households or companies.

To prevent any liquidity crunch the ECB also announced seven new Pandemic Emergency Longer-Term Refinancing Operations (PELTRO) at which banks will get as much credit as they want and earn 25 basis points.

This may prove enticing in particular for lenders in peripheral countries such as Spain that can use the cash to buy higher-yielding domestic government bonds and pocket the difference in interest rates.

$1 = 0.9154 euros Reporting By Jesús Aguado; additional reporting by Emma Pinedo; editing by Andrei Khalip and Angus MacSwan

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