Liquidity management and funding policy

The Group's primary source of funding is its customer deposit base (mainly current accounts and time deposits acquired through the branch network). This is supplemented by funds raised on the interbank and capital markets where the Bank has a number of short and long-term funding programmes in place, giving it a suitable diversity of funding sources and of products, maturities and investors. In addition to these sources of funding, Banco Sabadell holds a buffer of liquid assets to cover any liquidity requirement that may arise. At the end of 2014, first-line liquid assets amounted to €18,758 million.

The deposit base has grown in recent years, displacing capital market funding, with a positive impact on the Group's bottom line while also reducing the loan-to-deposits (LTD) ratio (calculated as net loans and advances adjusted for subsidised funding/retail funding) from 122% at 2012 year-end to 104% at the end of 2014.

The group’s main sources of funding at the close of 2014 are further analysed in graphs G7 and G8.

At the end of 2014, the Group had €23,085 million in outstanding capital instruments, compared with €26,063 million a year earlier.

The Bank's funding structure is balanced: 16.5% is from the wholesale market (of which 62.4% are covered bonds), and it has a comfortable maturity schedule, with €3,064 million falling due in 2015.In 2014, the amount of customer funds on the balance sheet remained stable, and a shift was observed from time deposits to demand deposits as a result of the prevailing low interest rates. The Bank also participated in the ECB's targeted longer-term refinancing operations (TLTRO), obtaining €5,500 million, although it reduced its position with the ECB by €1,600 million during the year (from €8,800 million in 2013 to €7,200 million at 2014 year-end) due to efficient liquidity management.

As far as wholesale market funding is concerned, like the rest of the banking sector, Banco Sabadell experienced rating downgrades by the major rating agencies in response to the reduction of Spain's sovereign credit ratings. In 2014, the three agencies that were rating Banco Sabadell’s credit quality were Standard & Poor’s, Moody’s and DBRS. In November, Standard & Poor’s Rating Services upgraded Banco Sabadell's long-term rating by +1 notch to BB+ (from BB) and affirmed its short-term rating at B, following a review of Spain's economic risk.