Spanish banking groups recorded an attributable profit of 12,709 million euros up to September 2009, representing a 10.7% decrease compared to the same period in 2008. This result was achieved after increasing provisions for insolvencies and write-offs by 66%.
The aggregate result of individual accounts amounted to 9,470 million euros, 6.3% lower than that obtained in the same period of 2008.
In the first nine months of the year, banking activity developed in a very complex economic and financial environment, marked by a sharp decline in household consumption and corporate investment. For banks, this economic deterioration has translated into a generalized decrease in credit demand and a pronounced increase in non-performing loans.
In this context, “Spanish banks have opted for prudent management, which has led them to strengthen their capital position by increasing their own funds and allocating larger provisions for insolvencies,” explained the Secretary General of the AEB, Pedro Pablo Villasante, during the presentation of Spanish banks’ results for September 2009.
Indeed, the income statement for the first nine months of 2009 is characterized by the significant effort made in write-offs, totaling 15,993 million euros, a figure 66% higher than that of a year prior.
Regarding own funds, the AEB Secretary General highlighted not only their increase but also the improvement in their quality, to the extent that the Tier 1 ratio now reaches 9.2% and core capital 7.7%, both 100 basis points higher than those published in 2008. The high BIS ratio of 13% stands out, as does the excess of computable funds of 50,783 million euros, 40% higher than a year ago.
Pedro Pablo Villasante emphasized that “Spanish banks maintain their capacity to generate positive results and have not had to use their own funds to absorb losses or be recapitalized with substantial public aid, unlike their main international competitors.” In his opinion, this better situation is due to the fact that “Spanish banking has a business model, focused on creating a lasting commercial relationship with clients, which has proven to be especially resilient to the crisis.”
The management of Spanish banks has also sought to strengthen competitiveness through continuous efforts in controlling operating expenses and improving their structure, as well as by expanding international franchises. Specifically, the efficiency ratio improves and stands at around 41% before provisions. “Efficiency gives us competitiveness and provides us with the agility needed to withstand adverse business cycles,” Pedro Pablo Villasante noted in this regard.
The management of non-performing loans has also been a priority for Spanish banks during this period. As of September 30, the non-performing loan ratio stood at 3.6%, with coverage funds established 22% higher than those recorded a year ago, representing 69% of doubtful assets.
In the aggregated individual accounts of Spanish banks, the non-performing loan ratio stood at 4.2% and its coverage at 66%. Villasante highlighted the fact that in Spain, the loan portfolio has a high degree of mortgage collateral, much higher than that existing during the crisis of the early 90s.
In any case, he insisted that “it is fundamental not to confuse delinquency with loss” and explained that “the proximity of Spanish banking to its clients provides it with a deep understanding of their situation, the ability to anticipate risk management, and facilitates resolving difficult situations, which, together with existing guarantees, ultimately translates into higher recovery rates and lower losses.”
Regarding activity, it should be noted that consolidated credit investment continues to grow at an annual rate of 5.1%, while in terms of individual accounts, credit investment in Spain shows a negative rate of 0.4%. In the opinion of the AEB Secretary General, banking entities continue their efforts to finance Spanish households and businesses by maintaining a volume of credit similar to that existing before the start of the financial crisis, despite our economy contracting at an annual rate of 4.4% in nominal terms.
He also highlighted that credit in Spain is showing similar behavior to that of the main Eurozone countries, “despite their respective financial systems having received capital aid totaling close to 600,000 million euros.”
The Secretary General of the AEB indicated that the decline in credit demand is a consequence of the deleveraging process that the Spanish economy requires, both for households and businesses, which is why, in his opinion, “it is not possible to reduce our indebtedness by requesting more credit.”
This process could continue for some time, since, according to Pedro Pablo Villasante, “both national and international public bodies indicate that Spain might participate with some delay in the gradual recovery of activity that is emerging in the international economic environment.”
“There are still doubts about what will happen both with the incipient growth recorded by the global economy and in the international financial system when the substantial public stimulus measures disappear,” said Villasante, for whom “it is of vital importance that international authorities know how to adequately coordinate the withdrawal of emergency policies to prevent each country from going its own way in exiting the crisis.”
In summary, Spanish banks persevere in their efforts to increase their solvency, boost their provisions, and improve efficiency, as a means to emerge from the crisis with a strengthened and more competitive financial system.
