Capital flight leaves banks in Germany awash in deposits

As Europe?s sovereign debt crisis escalates, Germany is becoming a magnet for depositors keen to stow their savings in the euro area?s safest market.

Deposits in Germany rose 4.4 percent to 2.17 trillion euros ($2.73 trillion) as of April 30 from a year earlier, according to European Central Bank figures. Deposits in Spain, Greece and Ireland shrank 6.5 percent to 1.2 trillion euros in the same period, including a 16 percent drop for Greece, the data compiled by Bloomberg show.

As banks in Europe?s periphery fret over lost deposits, German lenders are awash in liquidity that comes on top of more than 1 trillion euros the ECB has made available in three-year loans to banks since December to ease the flow of credit. The prospect of Greece leaving the 17-nation euro region is fueling the capital flight as parties opposed to the terms of the country?s second bailout prepare for a new ballot on June 17 after winning most of the votes in elections last month.

?The longer the debt crisis lasts, the more funds will flow to Germany,? said Dieter Hein, a banking analyst with Fairesearch GmbH in Frankfurt suburb Kronberg. ?People think of Germany as the euro area?s safest country.?

The funds are a boon for domestic lenders, contributing an extra 5 billion euros in customer deposits at Deutsche Bank AG from September to March. Frankfurt-based Commerzbank AG added about 7 billion euros in deposits in the first three months of 2012, helping to erase its need to tap bond markets for refinancing this year, according to a May 9 presentation.

Makes Sense

?German banks are benefiting from a flight to quality,? Raimund Roeseler, head of banking supervision at Germany?s financial regulator Bafin, said at a June 5 press conference in Bonn. ?That?s why they?re experiencing liquidity inflows and have less problems refinancing than their European peers.?

Banks outside Germany are also seeing an opportunity to tap the growing liquidity, prompting a surge in deposits at German branches of foreign lenders to 82.9 billion euros as of April 30 from 60.4 billion euros a year earlier, according to Bundesbank data.

?It makes a lot of sense actually from the banks? point of view,? said Mark Macrae, an analyst covering emerging market banks at Prague-based brokerage Wood

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