London: Banks reduced their holdings of Greek, Irish, Portuguese and Spanish debt in the second quarter as the sovereign crisis roiled credit markets, according to the Bank for International Settlements (BIS).
Lenders cut the amount they had at risk to the nations by $107 billion to $2.28 trillion, the Basel, Switzerland-based BIS said in its latest quarterly report. Virtually all major banking systems reduced their exchange-rate adjusted holdings in Greece during the period, BIS said.
"Concerns about sovereign risk in several euro-area economies have resurfaced and become the dominant theme," the BIS said. "Irish government bonds came under particularly strong pressure, but Greek, Portuguese, Spanish and later Belgian and Italian government bonds were also affected. Sovereign yield spreads between these countries, and Germany continued to reflect concerns about their public finances."
The European Union and International Monetary Fund established a ¤750 billion (Dh3.642 trillion) crisis fund in May after Greece's near-default threatened the survival of the unified currency.
Bond purchases
European finance ministers ruled out immediate aid for Portugal and Spain or an increase in the fund, relying on European Central Bank bond purchases to calm investor concern.
Ireland's ¤85 billion bailout from the EU and the IMF last month failed to reassure investors about the soundness of the public finances in the region, the BIS said.
"We expect the eurozone sovereign debt crisis to become worse before it gets better," Sanford C. Bernstein analysts including Dirk Hoffmann-Becking said in a report yesterday.
French banks had the most at stake in Greece, with $83.1 billion (Dh305.235 billion) at risk, compared with German bank holdings of $65.4 billion, the data show. British banks had $187.5 billion in exposure to Ireland, while German lenders had $186.4 billion.
Banks in Germany, Europe's biggest economy, had $512.7 billion at risk to Greece, Ireland, Portugal and Spain at the end of the second quarter.
