DBRS: TLTRO-III Removes Medium-Term Refinancing Risk at European Banks
DBRS views the recently announced conditions of the new round of Targeted Long-Term Refinancing Operations (TLTRO III) as positive for European banks, especially for those with high levels of TLTRO II funds.• In DBRS’s view, TLTRO III reduces concerns that banks in certain countries may have faced some challenges to repay the sizeable TLTRO II funds that mature in 2020-2021.
• DBRS expects banks in Italy and Spain, and to a lesser extent in Portugal, to tap this funding source in the next two years to replace their TLTRO II funding and extend the maturity of their funding.
• In particular, DBRS notes the low cost of the TLTRO III funds compared to wholesale market funding, as some banks in these counties continue to face high costs when accessing wholesale markets.
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