Two conclusions could be drawn from a recent survey on banks among analysts. The first is the generally low stock market valuation of the sector in Europe. The second is probably the reason for the first: banks face enormous challenges that cloud the certainty about the future that managers always demand. Their decisions were divided on the path forward, between those who prioritized what is “cheap” and those who postponed the decision as “risky.”
The challenges facing our institutions are well known: demanding and increasingly complex regulation, the anomaly of negative interest rates, and the priority that customers place on digital transformation. Banks must establish their strategy focusing on digitalization, but based on exogenous and changing factors. It is certainly striking that authorities repeat that one of the challenges for banks is profitability and then take measures that may condition its improvement. And yet, bank profitability has improved consistently in recent years. This demonstrates their capacity for adaptation and the priority they always give to innovation. But there is still a long way to go before considering that the profitability achieved guarantees stability in the future.
Banking profitability is not tied to a specific business model. Having substantial capital does not guarantee recurring results either. Each institution must find its own path, considering its strengths and weaknesses. The right size, competition on equal terms, and talent are the best assets when embarking on this journey. And bearing in mind that digitalization will be essential, which requires being open to the possibility of collaborating with new non-bank competitors.
José Luis Martínez Campuzano, Spokesperson for the Spanish Banking Association
