According to the Royal Spanish Academy (RAE), ‘bancarizar’ means “to make someone or something, such as a social group or a country, develop or resolve economic activities through banking.” Banking penetration reflects both the degree of progress of the financial system in a given location and the extent to which banks are part of people’s important economic decisions, whether they are authorities taking measures in collaboration with the private sector to mitigate the effects of the pandemic, families purchasing a home, companies fueling their daily activity, or any of us when making a payment. The integration of banking in society is such that a society without institutions would be an impoverished and archaic society.
Like any other economic activity, banking must be profitable to survive, and must be subject to continuous improvements to meet the ever-increasing expectations of customers. Banking activity, however, has something unique: it is responsible for carrying oxygen to the rest of the members of the human body so that each can fulfill its function. It is therefore fundamental for growth and prosperity. We need strong and resilient banks for the economy as a whole to function well. This is recognized by our authorities and supervisors, who are aware of the essential connection between banking and the economy.
Banks are not only fundamental for financing progress and promoting innovation. If anything has been demonstrated in the health crisis, it is their effectiveness in enabling us to move forward when everything stops, as happened with the provision of financial products and services during the hardest moments of lockdown. And this has been possible thanks to their commitment to technology for years, which has made them leaders in financial innovation, accustomed to leading the necessary changes to provide increasingly better customer service, which demands permanent and immediate attention, with growing use of digital and mobile channels. All of this requires institutions to undertake major investments, which are only possible when the activity they carry out is profitable. To achieve this, it is essential to adjust expenses to income prospects, something complicated in the current context, marked by zero official interest rates and new technological competitors, with no interest in providing a universal service like that of banking, focused exclusively on those high-yield segments. And without being subject to the strict regulation and supervision of banks.
Recurrently, the European Central Bank (ECB) asks banks to improve their profitability without incurring excessive risks, although it knows very well how difficult it is to do so and also cover the cost of capital—the return demanded by investors and shareholders—in a scenario like the current one. Zero official interest rates are a handicap and also one of the greatest vulnerabilities to financial stability. The prolonged exceptional scenario of low interest rates penalizes banks and savers, while potentially leading to excesses in financial markets. Nevertheless, Spanish banks are gradually recovering their profitability, thanks to the incipient but promising economic recovery, and the adaptation of their structures, a process as complicated as it is inevitable. This is called efficiency, where Spanish banks are also at the forefront in Europe. All of us, consumers and banks, will benefit from the virtuous circle generated by increasingly efficient and profitable banks.
José Luis Martínez Campuzano, Spokesperson for the Spanish Banking Association
