At the end of the first quarter of 2009, Spanish banking groups recorded a consolidated net profit of 4,052 million euros, 21.5% lower than that obtained in the same period of the previous year, while the aggregate profit of individual banks rose to 3,016 million euros, representing a 10.2% decrease. In quantitative terms, the amount obtained in this first quarter is similar to that reached in March 2007 and significantly higher than that recorded in the first three months of 2006.
The General Secretary of the Spanish Banking Association (AEB), Pedro Pablo Villasante, pointed out that these results demonstrate the ability of Spanish banks to manage their activity in a complex financial environment and in a context of deep economic recession, in which numerous international banks have been forced to report losses and have even had to be rescued by their respective governments. He also highlighted that the profits for the first quarter of 2009 maintain a high level of recurrence, which, combined with the traditional cost containment of Spanish banking, has allowed our banks to make a significant effort in provisions.
All of this has placed profitability in terms of ROE (return on average equity) at 14% in individual accounts and 13.7% in consolidated accounts, rates similar to those at the close of the previous financial year and which represent a high multiplier compared to long-term risk-free investments.
Regarding solvency levels, the quality and high level of the BIS ratio stands out at 12.30%, which Spanish banks have achieved through their own means and without receiving any type of public aid after having increased their eligible own funds by 9.5%. Tier 1 stands at 8.43%, which is 95 basis points higher than a year earlier. Furthermore, as of March 2009, Spanish banks presented an excess of own funds of 43,746 million euros over the necessary regulatory minimums, 15.5% more than the excess existing a year prior.
Regarding the evolution of the different business margins, the increases in the net interest margin stand out, resulting from the defense of business volumes and the drop in interest rates, although it is foreseeable that this comparative effect will tend to moderate throughout the year.
The operating result recorded a 13.8% drop in the first quarter of the year after the significant effort made in write-offs, to which 4,135 million euros were allocated, almost 70% more than a year earlier. This effort responds to the growth of the non-performing loan ratio, which reached 2.95%. Consequently, the coverage ratio has decreased considerably to 77%, although it remains notably higher than that of neighboring countries.
In this regard, Pedro Pablo Villasante warned that it is essential not to confuse delinquency with loss, as most non-performing loans are usually recovered over time. This idea is supported by the fact that the credit investment of Spanish banks has a high degree of mortgage collateral that backs the possibility of recovering a large part of the investments.
The increase in delinquency reflects the deterioration of the real economy and the lower level of activity, circumstances that for Spanish banks have translated into generalized drops in credit demand and a worsening of the risk profile of their operations. Despite this recessive environment, lending to customers has grown by 4.3% and 12% in individual and consolidated accounts, respectively.
The drop in activity has also manifested in net fee and commission income, which has been reduced by 12.3% due to the sharp reduction in commissions obtained from the marketing of non-banking products and securities, explained by the transfer of investment and pension funds to bank deposits and the strong correction experienced by stock markets.
General expenses are growing in a contained manner, at a rate similar to that of the total consolidated balance sheet and to a much lesser degree in the individual aggregate balance sheet. The efficiency ratio has worsened, although it remains at more favorable levels than those of other financial systems.
The AEB General Secretary noted that a reduction in the number of branches and employees of Spanish banks can already be observed. In his view, the financial system must adapt its structures to the new reality of the market and the economy in which it operates to achieve new levels of efficiency. “The way out of the crisis involves greater consolidation of the banking system, both at an international and national level,” he said.
In the opinion of Pedro Pablo Villasante, the restructuring of the Spanish financial system must have the ultimate goal of making the banking system as a whole stronger; therefore, public money should not be used to recapitalize entities that are not viable and have not managed their risks well.
