Last year will go down in history as one of the most complex that the world in general, and Spain in particular, has had to face. Fortunately, the authorization to begin distributing the first COVID-19 vaccines and the start of their application to citizens have opened a window of hope: We now know that we are in a position to overcome the pandemic, and that this will very likely happen before the end of this year.
This momentous announcement has encouraged an improvement in expectations for the global economy, which has been reflected in the rebound recorded by all stock markets at the beginning of January. In the Eurozone, the distribution of the first vaccines has added to the expectations created by European funds, which the European Commission will allocate to member states over the next two years, and of which Spain will be one of the main beneficiaries.
Vaccines and European aid are two exogenous factors that should boost the growth of the Spanish economy, as they undoubtedly will, but they must be accompanied by adequate internal management, both to optimize the impact of these funds and to undertake the structural reforms that will allow our economy to raise its growth potential. As I have said on other occasions, we must work and plan for recovery relying only on our own strengths, and anything extra will be welcome.
In both tasks, but particularly in the distribution and management of European aid, Spanish banks have offered their experience and resources to ensure the greatest efficiency in the selection and distribution processes. Our institutions have demonstrated, during the allocation of ICO-backed loans (more than 110 billion euros that reached almost 600,000 companies, 98% SMEs and self-employed), that they have the capacity to reach those most in need with great speed and effectiveness, and that they are experts in analyzing risk and weighing business projects, as this is their core business. For all these reasons, we believe that throughout this year, banking institutions will be able to continue, if permitted, their immense work of supporting families and businesses, which they have been doing since the outbreak of the pandemic, and thus accelerate the economic recovery process.
However, I do not wish to be overly optimistic. It is true that banking activity, which is highly sensitive to the evolution of the real economy, will also benefit from this improvement in economic expectations. At the beginning of the year, a change in market sentiment among investors towards the financial sector was already evident. The perception that vaccines could boost the global economic recovery process gave wings to the share prices of Spanish banks.
Any improvement is welcome for a sector like banking, which has not been immune to the effects of the COVID-19 pandemic. The new situation is requiring financial institutions to take rapid measures, and in this regard, Spanish banks have been exemplary in adopting decisions at an unimaginable speed just a few months ago, comparing favorably with their European counterparts. They will need to continue on this path of cost reduction and business model adaptation to face a “new normal,” which is determined by digital penetration across all segments of the population, lower revenues due to the decline in economic activity caused by the pandemic, and very low or negative interest rates that are definitely here to stay for a long time. Added to this is the emergence of new players—the so-called shadow banking and large technology companies—who compete with an advantage by operating outside strict banking regulation.
As can be seen, there are plenty of reasons for our institutions to quickly adopt measures that facilitate their adaptation to the new circumstances. Fortunately, Spanish banks are accustomed to managing complex situations, and many of the challenges that other competitors still face, they successfully addressed in recent years. I refer to the intense process of capitalization, balance sheet clean-up, and sector consolidation that took place during the international financial crisis. Also, to the substantial investments in technology undertaken over the years, which allowed them to offer online services to clients during lockdown, with agility and without incidents, transforming the operating model in just a few weeks. This was a true test for the technological infrastructures of our institutions, which resulted in resounding success. The goal now is to achieve the best combination of digital and human interactions, the intelligent use of data, and ultimately, to promote attractive and efficient service delivery models.
Likewise, it is essential to extract the best lessons from the pandemic, as the future success, and even survival, of our institutions will largely depend on this. Among these lessons is the need to operate with agility and to introduce flexibility in organizations and workplaces, while maintaining a focus on employee well-being and productivity.
Finally, banks are aware that they must lead social change to mitigate climate risk, and indeed, last year they took a giant step in implementing common standards and reports, although they warn that they cannot do this alone and need authorities to show the way forward and clear up the confusion created with clear rules and an equitable distribution of responsibilities.
In summary, our banks are currently in a better solvency position than during the previous crisis, thanks to the efforts made in recent years, which has allowed them to help their clients and society as a whole mitigate the damage caused by the pandemic. But it is very important, extremely important, to preserve this solvency situation, avoiding burdening the sector with charges that do not correspond to it, since the Spanish economy’s ability to quickly emerge from the deep recession caused by the COVID-19 pandemic will largely depend on the banks’ capacity to finance businesses and families. Banks are aware of the significant responsibility that falls upon them and will know how to address the necessary changes to continue fulfilling their social function with effectiveness and competence.
José María Roldán, Chairman of the Spanish Banking Association
