A few days ago, the ECB and the European Commission published the conclusions of their latest visit to Spain in early April to assess the economic and financial situation. Pending the full report, both institutions assessed the current situation of Spanish banks positively. They praised institutions’ efforts to strengthen their capital and maintain comfortable levels of liquidity, highlighted improvements in profitability and the business model, welcomed the reduction in non-performing loans and the sector’s high efficiency, and emphasised the sharp increase in new financing, which is essential to understanding the current strong growth of the Spanish economy. Their assessment is a welcome reward for the sector after a decade of effort, although it overlooks the changes taking place in institutions’ social responsibility, as they seek to contribute to society’s progress through their decisions.
For the European authorities, the main challenge for banks on the Old Continent is profitability. In the case of Spanish banks, the continued improvement in profitability is supported by the margin provided by new financing, greater efficiency, and a reduced need to set aside provisions. The decline in loan non-performing loans and the reduction in foreclosed assets from the crisis are other factors that explain the improvement in profitability. More adjustments can always be made, and more quickly, but the important thing is to carry them out in an orderly, minimally disruptive way, and to make them compatible with the best possible financing of the economy. The strong growth in new credit to companies and households reflects banks’ success in their role as the transmission mechanism for the ECB’s extreme monetary policy measures.
Spanish banks are an example of financial innovation in Europe in the service of customers. The greater efficiency achieved represents an improvement in institutions’ internal transformation process, which must benefit customers through new products and services of higher quality and at an appropriate price. Bank profitability is an essential requirement for institutions to strengthen their capital and continue investing to be more competitive. Profitability and efficiency go hand in hand. Both are essential to ensure the sustainability of banking activity.
Our institutions are fully open to incorporating new technologies into their business model. They are leaders in relationship banking and operate internationally through independent subsidiaries. All of this translates into extensive experience in risk management, making Spanish banking a safe, trustworthy industry, fully committed to customer service and to financing economic growth.
The challenges that emerged during the crisis have become the real levers of transformation in banks, which have had to adapt to complex regulatory changes with implications for their capacity for innovation and digital transformation. It is important that authorities recognise that excessive regulation may ultimately limit both financial innovation and banks’ core function of increasing financial inclusion.
But in addition to the external challenges it has faced, Spanish banking has long been engaged in an internal transformation—of its culture. This change in the way things are done seeks not only to mitigate risks, including reputational and conduct risks, but also to strengthen the foundations for proper conduct. Respect, clarity and transparency must take precedence within banks’ internal organisation and guide their relationship with customers. Added to this behavioural compass are changes in our institutions’ social responsibility, which, through their activity, prioritise more inclusive and sustainable economic growth.
What will the banking model of the future be? Digital transformation and new non-bank competition are important elements in this interesting debate taking place worldwide, as are regulation and the environment of negative or zero real interest rates. Alongside banking’s growth opportunities, there are also constraints and obstacles. Between these two extremes, banks will know how to find the path to continue financing the economy and providing the best service to society.
