MILAN, March 13 (Reuters) - European banks are unlikely to find themselves compelled to liquidate their bond holdings at a loss like their U.S. peer Silicon Valley Bank (SIVBV.UL), Moody's Investors Service said on Monday.
Though rising interest rates have hit the value of banks' bond portfolios, their market value will tend to converge with their nominal value as they approach maturity, under an effect known as 'pull-to-par'.
"Based on their sound liquidity and funding profiles, cash holdings and stable deposit bases, we consider large European banks are generally well placed to avoid the need to sell their bonds at a loss," Moody's said in a comment.
Moody's noted that a third of European banks' government bond holdings mature within the next two years, ensuring a continuous inflow of cash and reducing the need to sell assets.
The agency noted that the failures of U.S. banks Silicon Valley Bank and Silvergate (SILV.UL) resulted from "a sudden loss of confidence and resulting high cash outflows from concentrated deposit bases".
"Smaller, deposit-funded banks can rely on the stability of their loyal depositor bases, which ensures they can wait for a recovery in bond values without incurring materially higher funding costs," it added.
