In the first quarter, a significant effort in provisions was maintained, with €5,762 million allocated, a similar amount to the first quarter of 2012, which already included part of the extraordinary provisions for real estate assets.
Spanish banks have obtained these profits without requiring public capital assistance or resorting to the transfer of problematic real estate assets to Sareb.
It is necessary to deepen the Banking Union, implementing the single supervisor in the eurozone as soon as possible as a necessary step to achieve a common resolution system that ensures a sustainable framework for financial stability.
The AEB Secretary General, Pedro Pablo Villasante, considers that the attributable profit of Spanish banking groups in the first quarter of 2013, although 16.6% higher than in March 2012, remains modest as a consequence of the still difficult economic and financial environment in which it was generated.
Indeed, the environment has not been conducive to banking activity, as the economic slowdown has been accompanied by a widespread decline in interest rates, which has negatively affected the interest margin and increased non-performing loans, with the consequent need to make still-elevated provisions, as explained by Pedro Pablo Villasante during the presentation of Spanish banks’ results for the first quarter of 2013. However, he indicated that the recognition of extraordinary capital gains has allowed the results obtained to compare favorably with those published in the same period of the previous year.
Despite this difficult environment, he expressed confidence that the 2013 income statement will improve progressively throughout the year, given that the still-elevated provisioning effort will be lower than the extraordinary provisions made in 2012, while the decline in the financial margin is expected to be corrected in the final part of the year.
Nevertheless, he emphasized that during the first quarter a significant provisioning effort was maintained, with €5,762 million allocated, representing 60% of the operating margin, an amount similar to that of the first quarter of 2012, which already included part of the extraordinary provisions for real estate assets established by Royal Decree-Law 2/2012 of February 3.
From 2007 to March 2013, provisions made against the profit and loss accounts of Spanish banks total €146,549 million, double the €73,493 million in attributable consolidated profit for that period and three times the amount reached before the crisis.
The AEB Secretary General emphasized that this provisioning effort and the results obtained have been achieved without Spanish banks requiring public capital assistance or resorting to the transfer of problematic real estate assets to Sareb.
In this regard, Spanish banking groups have continued during this first quarter of the year to improve their capital ratios. Thus, as of March 31, 2013, their capitalization level remained well above the minimum requirement of 8%, with a BIS ratio exceeding 13%, reflecting an excess of equity over minimum requirements of approximately €54,889 million. The highest-quality component of the solvency ratio, core capital, stood at 10.77%, 67 basis points higher than a year earlier.
He also referred to the improvement in the efficiency ratio, which remains at an excellent level and among the best in international commercial banking, despite the fact that Spanish banks have incorporated new entities, both within and outside Spain, that operated with lower efficiency levels.
Regarding the financial environment, Pedro Pablo Villasante noted that the year began with a widespread improvement in conditions in the financial markets, a circumstance that Spanish banks have leveraged to resume issuing medium- and long-term debt and reduce their dependence on the ECB, repaying part of the funds obtained from the LTRO programs at the end of 2011 and the beginning of 2012.
However, he clarified that this relative improvement does not mean the situation is easy. After five years of crisis, the Spanish economy and other European economies have entered a second and prolonged recession. Added to this are financial volatility and the threat of possible macroeconomic and financial shocks. “We continue to suffer the effects of the renationalization and fragmentation of the European financial market, which prevents the transmission to the real economy of common monetary policy impulses, as the interest rates applied by banks respond more to the risk premium of each country’s public debt than to the European Central Bank’s intervention rates,” he explained.
For all these reasons, he considered it necessary to deepen the Banking Union, implementing the single supervisor in the eurozone as soon as possible as a necessary step to achieve a common resolution system that ensures a sustainable framework for financial stability.
Furthermore, he insisted that to emerge from the crisis it is necessary to find a balance between the application of budgetary austerity policies and measures that promote economic growth and job creation, which in turn would help achieve the necessary fiscal consolidation in a less traumatic manner and reduce the social cost resulting from the established adjustments.
Pedro Pablo Villasante indicated that the prolonged contraction of economic activity, the high level of unemployment, and the need for external public assistance to recapitalize some savings banks have revealed the weaknesses of the Spanish economy, making it necessary to continue persevering in their correction. Nevertheless, he expects that “2013 will become the bridge year toward the recovery of the Spanish economy.”
He also noted that the Troika, in the preliminary conclusions of its latest report on Spain, has recognized the improvement in the financial situation and the significant progress achieved in banking restructuring and in compliance with almost all the conditions imposed in the MOU for the financial assistance received last year from the European Financial Stability Mechanism.
