The AEB Secretary General, Pedro Pablo Villasante, stated today that 2013, although difficult for the Spanish economy, is clearly shaping up as a bridging year towards a recovery that is expected to consolidate in 2014.
During the presentation of Spanish banks’ results for the first nine months of the year, Pedro Pablo Villasante noted that perceptions of Spain’s economic situation have improved significantly compared with the previous year: “It should be remembered,” he said, “that in 2012 we were facing the imminent bailout of our economy and, from there, in one year we have moved to an incipient economic recovery, the beginning of the return of confidence among foreign investors in our country, and a clean exit from the financial assistance programme, after meeting all the required conditions and using less than half of the aid received to recapitalise certain savings banks.”
In his view, this improvement has been possible thanks to the tremendous effort made by Spanish society and the combined effect of the reforms undertaken in recent years, aimed at fiscal consolidation to ensure the sustainability of public finances; the recapitalisation and restructuring of the financial sector; labour market reform; and other measures designed to improve competitiveness.
In any case, he warned that, in order to preserve the positive effects achieved and make them sustainable over time, it is necessary to continue making progress in correcting the main imbalances in our economy, such as the large net external debt, the public deficit, and the high level of indebtedness of public administrations and the private sector. In this situation, the AEB Secretary General considers it necessary to build on the current reform momentum to continue improving our competitiveness and to complete the restructuring of the financial system by selling, as soon as possible, the entities rescued by the State.
Despite the improvement recorded this year, in his view “we cannot afford to relax”, as the economic recovery is still at an early stage, with growth still moderate and with the need to reduce the high level of private-sector debt, which means that credit growth figures for the economy remain negative.
In this regard, he added that the effects of the renationalisation and fragmentation of the European interbank and financial market still persist, preventing the transmission to the real economy of the impulses of the common monetary policy, since the interest rates banks apply to their customers respond more to each country’s sovereign risk premium than to the ECB’s policy rates.
For that reason, he explained that AEB member banks fully support the project of financial integration in the euro area, as they believe it is necessary to have the ECB as the single supervisor and the Single Resolution Mechanism for banks as soon as possible—essential steps to overcome the vicious circle between bank debt and sovereign debt. He also believes that the new European supervisory framework will help dispel the doubts that still exist about banks’ solvency in the different member countries—doubts that are contributing to prolonging the climate of financial instability and delaying the exit from the crisis.
Pedro Pablo Villasante did not hesitate to state that Spanish banks face with confidence the asset quality review and stress tests that the European Central Bank will carry out over the coming year before assuming its responsibility as the single supervisor. These tests will increase transparency and facilitate comparisons between European institutions under a common methodology.
In this still challenging economic and financial context, adverse for banking activity, Spanish banks recorded consolidated attributable profit of €6.702 billion in the first nine months of 2013, after allocating €17.976 billion to write-downs. Pedro Pablo Villasante considered the year-on-year increase in profits to be of little significance because it is compared with 2012, a year in which significant extraordinary write-downs were made.
According to the AEB Secretary General, profits and returns of Spanish banks in the first nine months of the year, “while positive, are still modest” and are characterised by a decline in net interest income, the combined result of the contraction in activity and low interest rates; by the need to continue making significant write-downs due to the deterioration of the loan portfolio, although of a smaller amount than those recorded in 2012; and by the recognition of non-recurring gains from discontinued operations.
Despite this, Villasante wished to recall that Spanish banks have generated these profits through their own means, without any support from public capital aid since the financial crisis began and without resorting to transferring problematic and non-performing real estate assets to Sareb, as other competitors have done.
Moreover, he stressed that Spanish banks have not only not received public aid, but have also borne a substantial part of the losses caused by the crisis of certain savings banks, mainly through the use of the amounts accumulated in their Deposit Guarantee Fund and through the subscription of part of Sareb’s private capital, thereby helping to reduce the cost that the financial crisis has had for the Spanish State and, therefore, for taxpayers.
In addition, throughout the crisis Spanish banks have carried out a “colossal” clean-up of their own balance sheets, allocating €158.163 billion—an amount that doubles the €77.055 billion in consolidated profit obtained in the period 2007–September 2013. Pedro Pablo Villasante expects the clean-up to continue throughout this year, although it will not be as high as the extraordinary effort made in 2012. From January to September, write-downs amounted to €17.976 billion, a figure 30% lower than that set aside a year earlier, when the extraordinary provisions established in the two Royal Decree-Laws on the clean-up of the financial sector’s real estate assets were made.
At the same time as cleaning up their assets, Spanish banks continued their extraordinary effort to strengthen their balance sheets and increase the level of their highest-quality own funds. Thus, as of 30 September 2013, the capitalisation level of Spanish banking groups remained well above the minimum requirement of 8%, with a BIS ratio above 13.6%, reflecting an excess of own funds over the minimum required of €57.699 billion. The highest-quality component of the solvency ratio, core capital, stands at 11.46%, 100 basis points higher than a year earlier.
Likewise, the financial structure of Spanish banks has improved significantly, as they have increased customer deposits, which has enabled them to repay a large part of the funding received from central banks and to access wholesale markets now in a much more selective manner, taking advantage of opportunities in terms of price and maturity.
In short, Spanish banks are persevering with the strategy they implemented at the beginning of the crisis and which, as Pedro Pablo Villasante explained, consists of relying on their own resources without resorting to public aid; maintaining their retail banking business model focused on the productive real economy; and improving their competitive capacity by strengthening the balance sheet, increasing operational efficiency, and geographically diversifying their activity and sources of income.
