The majority of large European banks reported weaker liquidity coverage ratios in the second quarter, S&P Global Market Intelligence data shows.
Two-thirds of the 33 European banks with assets of more than €100 billion posted quarter-over-quarter declines in their coverage ratios. The ratio is calculated by dividing a company's stock of high-quality liquid assets by total net cash outflows over a 30-day period.
Swedbank AB (publ) had the biggest quarterly drop in its ratio at 19.08 percentage points, though the 147.21% result represented a 3.99-percentage-point increase year over year.
Groupe BPCE, Caixa Geral de Depósitos SA and Banco de Sabadell SA also reported double-digit quarterly declines on a percentage basis, though Caixa Geral de Depósitos retained the largest absolute liquidity coverage ratio in the sample at 356%.
HSBC Holdings PLC recorded the smallest drop in its liquidity ratio, down by 0.40 percentage point. Alongside Deutsche Bank AG and Skandinaviska Enskilda Banken AB (publ), it was among the least liquid banks in the sample.
By contrast, the European bank with the biggest jump in its liquidity ratio was Raiffeisen Bank International AG in Austria, which saw a jump of 56.36 percentage points. Raiffeisen's second-quarter results benefited from strong results in net interest income, up 57% to €1.21 billion. This was attributed to greater deposits in Russian rubles and appreciation in the ruble against the euro.
The second-biggest increase in liquidity ratios was just 19.27 percentage points, belonging to Unicaja Banco SA from Spain. Recently however, the Spanish government announced a windfall tax on banks and other companies, saying it would be used to help citizens cope with higher cost of living. Bank executives sharply criticized the announcement, saying it might hurt the lenders and investor confidence in banks.
In a credit research report, S&P Global Ratings said it expects that although market volatility and inflation will cut into earnings of European financial institutions, higher interest rates will overall provide upward support to their earnings. However, the rating agency did express concern on actual European sovereigns, due to a mix of the ongoing Russia-Ukraine war and its spillover effects, and demand and supply shocks. Higher oil prices, food scarcity or difficulty in food availability could also keep inflation at elevated levels going into next year.