The AEB President, José María Roldán, stated that the Spanish economy is entering an undeniable process of recovery and reactivation, which the banking sector is in a position to support in a sustained manner over time, after having undertaken the “titanic” process of cleaning up and strengthening their balance sheets throughout the crisis.
José María Roldán, who participated today in the opening of the 5th Financial Meeting, organized by Expansión and KPMG, expressed his conviction that the Spanish economy is leaving behind the recent period of intense recession and job destruction and is entering a path of economic recovery, as necessary as it is undeniable. In this context, he emphasized that banks are in a position to support, in a solid and sustained manner over time, this process of economic recovery by meeting, as they are already doing, the demand for solvent credit.
In his opinion, this support is possible because the banking sector is completing the cleanup of its balance sheets and, although, he specified, specific efforts may still be necessary in certain portfolios or borrowers, these will be far from the titanic work carried out in the last five years. During this period, he highlighted, banks have managed to reconcile cleanup with the strengthening of their own resources. Specifically, banks associated with the AEB have increased their accounting equity by approximately €60 billion in the last six years.
In summary, José María Roldán assured that Spanish banks, those represented in the AEB and others, with the improvements in solvency and profitability they demonstrate, are prepared to support the economic recovery process. In particular, he valued the importance of their role in financing new SMEs and companies in the export sector, either directly or in collaboration with organizations such as ICO.
Furthermore, he indicated that the economic growth model has been transformed, as shown by the strength of the export sector, a factor that is key to reducing external debt in the long term. However, he observed that to sustain the external confidence that allows for a gradual and orderly reduction of our economy’s debt, it is essential to undertake whatever reforms are necessary, as well as to maintain confidence in Spanish banks, both abroad and in Spain.
To this end, he understands that an essential component of the AEB’s action is to help restore the sector’s image because, moreover, the recovery of the banking franchise’s value is key in a business such as this based on trust. “Only through patient education can we recover a place in public opinion that is fair. To do so, we must explain, with humility, rigor, and clarity, some characteristics of the banking business that are often overlooked,” he added.
For example, the model of banking at the service of clients, far from the speculative practices that gave rise to the crisis, and the international dimension of some banks has been, in his opinion, a fundamental element of stability in Spain during the crisis, although he regretted that this fact is not given the value it deserves.
Regarding the role played specifically by AEB banks during the crisis, he placed special emphasis on the fact that “in those difficult years, our institutions managed, with considerable effort, to clean up their balance sheets, strengthen their capital, maintain a profitable business model, and support the cleanup of other parts of the financial system that were deeply damaged. And all at the same time and with an economy in recession.”
For all these reasons, he allowed himself to request “with humility and also with insistence” that simplifications and generalizations of banks’ actions during the crisis not be made, and that criticism, always necessary, be approached with rigor and prudence. In this area, he especially valued the role that financial education must play in maintaining rigor in public debate and understanding the essential function that the financial system performs in a modern economy. “There is not a single thriving economy that does not have a solvent and profitable financial system behind it,” he asserted.
For the AEB President, however, it is not time to look to the past, but to think about the future. “AEB banks have cleaned up their balance sheets without public aid, at the expense of their profits and their shareholders’ returns, and are prepared to return to solid profits, based on rigorous risk management and cost control. This is good news, not only for bank shareholders, but for the economy as a whole,” he said.
During his speech, José María Roldán also referred to the AEB’s priorities for the next four years, which he summarized in one word: Europe, a term that expresses the challenge facing Spanish banks in the Banking Union construction process and, immediately, in their adaptation to the new single supervision, including the solvency tests prior to its implementation.
In this regard, he explained that in the short term, a large part of banks’ efforts will be directed toward successfully passing the so-called “Asset Quality Review” and the Stress Test. The AEB President expressed his conviction that our banks will be able to successfully pass these tests, despite the fact that the adverse scenario contemplated in the stress exercise is of considerable severity.
In this context, he drew attention to the genuine change in supervisory regime that is approaching, which is why he considers it vitally important that institutions can adapt to it without confusion. He also deemed it essential that the ECB commit to respecting the competitive balance between institutions and, moreover, he called on the new supervisor to take into account the evident strengths of the Spanish banks’ business model, based on long-term relationships with clients, strong franchises, and international expansion through autonomous subsidiaries that diversify risks, discipline management, and facilitate resolution strategies. “One size fits all is not enough for us. In fact, it can only be satisfactory for substandard institutions with weak management. AEB banks must aspire to equitable and fair treatment.”
Despite these positive forecasts, the AEB President warned that banking activity will not travel a bed of roses in the coming years but, on the contrary, faces a very difficult business environment that should not be unnecessarily complicated. He mentioned in particular the low interest rate scenario, which in his opinion will be prolonged over time and greatly complicates obtaining a sufficient interest margin. In his opinion, “only great discipline in operating expenses and the search for alternative recurring income, through the provision of auxiliary services to clients, have allowed banks to face this low interest rate scenario so far with sufficient margins to maintain positive results while simultaneously cleaning up their balance sheets through substantial provisions.”
Within the growing difficulty of the banking business, José María Roldán cited the new regulatory environment which, in his judgment, has become much more complex and demanding. Banks, he stated, will comply with the requirements of the new regulation, but it should not be forgotten that its standards of requirement are very high and, above all, it is necessary to let the measures in force show their effects before introducing new ones.
Regarding regulatory reform, the AEB President expressed his concern about one of its results, the displacement of part of the economy’s financing toward non-bank intermediation, exempt from a regulatory regime as demanding as that established for banks. “While greater financing via markets should not represent a significant change and is even desirable, the growing prominence of the shadow financial system may have a permanent impact on volatility, increasing it.” He warned that under Basel III, with core capital requirements more than four times higher compared to Basel II, the incentives to engage in regulatory arbitrage and shadow banking activity will be multiplied by four. In fact, he said, this advance of “shadow banking” is already felt in day-to-day operations.
