La banca española tiene 20.000 millones de euros en deuda soberana francesa

Spanish banks have increased their investments in French sovereign debt due to its higher profitability, but their exposure to risk is limited. France has become one of Europe's major financial risks due to its high public debt and excessive fiscal deficit. Concern has grown in recent days over the government's lack of response to the unrest and disturbances seen in various cities, including Paris. This complex issue affects the French financial markets, and investors fear that it could spread to other eurozone countries.

The rally in French 10-year bond yields has brought back memories of the financial crisis almost two decades ago. Yesterday, the yield reached 4.93%, its highest level in the past 24 years and the 160 basis points risk premium. Massive sales of French debt in recent weeks have depressed prices and increased yields, which move in the opposite direction of price.

This raises the cost of financing. The risk of a fiscal crisis in a country contagion to banking through its sovereign debt portfolio trades on the stock exchange and passes the bill to the share prices. Spain is not the focus of the market, but it watches the holdings of French sovereign debt of Spanish banks. The six banks in the Ibex 35 collectively hold over 20 billion euros in French sovereign debt, according to reports from the European Banking Authority (EBA) for the first-half transparency exercises of 2025.

On average, French sovereign debt represents around 7% of the European sovereign debt holdings of Spanish banks. Financial sources note that positions have changed relatively little in the case of mid-cap banking, and have even grown for Santander, BBVA, and CaixaBank. Santander has nearly 7.9 billion euros in French sovereign debt, followed by CaixaBank with around 7 billion euros, and BBVA with over 3.6 billion euros.

The portfolios of Sabadell, Bankinter, and Unicaja are smaller, amounting to 2.2 billion euros in total.

In recent years, the Spanish financial sector has substantially increased its investments in French bonds due to the attractive yields offered by their securities. During periods of lower monetary pressure like the one experienced a few months ago, sovereign debt weighs more on the interest margin, protecting it from a fall in official rates.

However, French debt has a minority presence in portfolios, which are dominated by Spanish and Italian government bonds. The risk is, therefore, limited, according to several analysts consulted by EXPANSIÓN. Moreover, most of these portfolios are protected under the amortized cost category, which isolates the profit and loss account from daily fluctuations of the bond, according to Antonio Castelo, an iBroker analyst.

This accounting treatment does not eliminate the economic risk entirely. If tensions persist and entities need liquidity, they could be forced to sell bonds before maturity and incur losses. The risk depends, among other factors, on the composition of the portfolios and the credit needs of each bank. Beyond the risk on the entities' results, Javier Cabrera, an analyst at XTB, believes the real risk lies in cases where the debt portfolio falls due to a rise in interest rates.

In such a case, liquidity risk increases because, if clients accelerate the withdrawal of deposits, the bank faces the risk of not having sufficient liquidity and may be forced to sell part of its debt portfolio at a loss. According to Cabrera, the potential problem is not in the banks' accounts, but in the risk (still low) that European citizens lose confidence in the euro and begin withdrawing their money from the banks and taking it to other currencies.

Experts do not expect banks to allocate more capital to sovereign debt despite increasing profitability and are leaning towards a stabilization of portfolios. Banks must find a balance between the weight of debt portfolios on the total balance sheet and credit, explains Nuria Álvarez, an analyst at Renta 4. The banking sector is looking ahead to the economic scenario with a focus on credit business.

More interest rate hikes are expected, which could favor an increase in margins if the demand for credit continues, deposit costs do not skyrocket, and default rates do not rise. It is important to note that any resource banks use to buy bonds is capital that is not transferred to credit extension, according to Álvarez.