* Money supply data shows lending to corporates shrinks* Euribor futures bounce from session lows after the data* Concerns rise about banks' government bond holdingsBy Marius ZahariaLONDON, March 28 Short-term interest rates inched lower on Wednesday after data showed the glut of cash injected by the ECB has yet to find its way through to the real economy, reinforcing bets that monetary policy will remain loose for a long time. The monthly flow of loans to non-financial firms fell by 3 billion euros in February after rising by just 1 billion euros in January. Euribor futures rose by around 3 ticks from session lows across the curve after the data, reflecting expectations for easier monetary conditions going forward. Market participants said the move reflected that markets now expected any ECB exit strategy will be activated later than previously thought rather than increasing bets for an interest rate cut or more liquidity injections.
"The huge amount of liquidity not only in the euro zone, but also in the U.S., UK and Japan means that the level of yields in bond markets is quite low and this is leading the corporate sector to go to the market for funding, (and rely) less on bank lending," BNP Paribas rate strategist Patrick Jacq said."There is no hurry for the ECB to ease or exit."A Reuters poll showed the ECB was expected to keep rates on hold in the foreseeable future. At the same time, data showed Italian and Spanish banks used the cheap loans from the European Central Bank to stock up on domestic government bonds, increasing their dependency on the sovereign's ability to fight the debt crisis.
The new data, which captured the period just before ECB's record second injection of 3-year cash, showed Italian banks increased their holdings of euro zone debt by 23 billion euros, taking their total holdings to 301.6 billion euros. Spanish banks increased their holdings by a hefty 15.7 billion euros. While the rise was smaller than January's record 23 billion, it left total sovereign holdings at a record 245.8 billion euros. JPMorgan estimates the holdings of government bonds as a percentage of total banking assets is now around 8 percent for both Italy and Spain, which is the highest in the euro zone after Greek banks, whose government debt represents 10 percent of total assets.
"It's a big figure ... If at some point we have a reignition of worries about the sovereign, banks will suffer massively," said Nikolaos Panigirtzoglou, European head of global asset allocation and alternative investments at JPMorgan."What destroyed Greek banks was not the fact that their equity was wiped out, was not ... their loan book, it was their government securities."Meanwhile, in a further sign that dollar funding conditions have eased, banks borrowed only $6.25 billion for three-months, compared with $25.5 billion."This reduction in the usage of the ECB's dollar facility is not surprising, given that private markets are more readily providing dollars," said Elaine Lin, rate strategist at Morgan Stanley. The three month euro/dollar cross-currency basis swap , which shows the rate charged when swapping euro rate payments on an underlying asset into dollars, kept close to its tightest since August 2011 at around minus 55 basis points. The measure, which widens in times of funding stress when investors compete for dollars, has gradually tightened from November's minus 167.5, a level not seen since the aftermath of Lehman Brothers' collapse in late 2008.
(Repeat for additional subscribers)March 27 () - (The following statement was released by the rating agency)Fitch Ratings has affirmed Taiwan-based China Bills Finance Corporation's (CBF) ratings, including its Long-Term Issuer Default Rating (IDR) at 'BBB'. The Outlook is Stable. A full rating breakdown is provided at the end of this commentary. Rating Action RationaleThe affirmation reflects CBF's long established market position in the Taiwanese money market, its adequate capitalisation and its prudently-managed asset quality. These strengths have protected the company from the industry's structural weaknesses such as limited business scope, susceptibility to interest rate changes and reliance on wholesale funding. Key Rating Drivers - IDRs, National Ratings and VRsFitch expects CBF's core earnings to remain moderate in 2013, as rising funding costs and narrowed spread continue to pressure its interest income and trading gains. CBF reported a modest profit (annualised return on equity of 6.44%) for 9M12 following strong earnings in 2011, on account of one-off gains on a property disposal. CBF has been prudent in credit extensions, underpinned by a low exposure (end-9M12: 0.03% of total guarantees) to problematic loans and a comfortable provision coverage (above 1.5% of total guarantees in 2010-9M12). CBF's liquidity profile is adequately managed. Its high-quality fixed-income securities holdings and a contingent liquidity facility provided by Bank of Taiwan (AAA(twn)/Stable) partly mitigate potential risk arising from its reliance on wholesale funding. CBF's capital adequacy (CAR) and Fitch Core Capital (FCC) ratios declined to 12.7% and 13.3% at end-9M12, respectively, from 14.3% and 14.9% at end-2011, due to guarantee growth. However, Fitch views its capital buffer as adequate, given its modest risk profile.
Rating Sensitivities - IDRs, National Ratings and VRsThe Stable Outlook underlines Fitch's expectation that CBF will maintain adequate capitalisation and stable asset quality. CBF's ratings have limited upside potential. Negative rating action may result from deterioration in capitalisation and asset quality, possibly from aggressive risk-taking in pursuit of growth, though Fitch views this is unlikely in the near term. Industrial Bank of Taiwan's (IBT, CBF's largest shareholder, with a 28% stake) intended merger with CBF is still subject to shareholder and regulatory approval, which is not expected within Fitch's rating outlook horizon. Fitch believes that the rating implication for CBF post merger may be neutral, as the benefits of larger franchise and enhanced capital base could be potentially counterbalanced, if an aggressive growth strategy is pursued after the merger materializes.
Key Rating Drivers - Support Rating and Support Rating FloorCBF's Support Rating (SR) and Support Rating Floor (SRF) reflect the limited probability of government support, if needed. Rating Sensitivities - Support Rating and Support Rating FloorThe SR and SRF are potentially sensitive to changes in assumptions around the propensity or ability of the government to provide timely support to CBF. This would most likely be manifested in a change to Taiwan's sovereign rating (A+/Stable).
Established in 1978, CBF is Taiwan's third-largest bills finance company, with a 18.3% of market share of guarantees at end-2012. CBF's rating this site IDR affirmed at 'BBB'; Outlook StableShort-Term IDR affirmed at 'F3'National Long-Term rating affirmed at 'A+(twn)'; Outlook StableNational Short-Term rating affirmed at 'F1(twn)'Viability Rating affirmed at 'bbb'Support Rating affirmed at '4'Support Rating Floor affirmed at B+'