Surveys make it possible to gain an approximation and, at times, even anticipate future behaviour. Therefore, a well-designed survey is always very useful as a leading indicator, although its reliability may be undermined by the uncertain environment in which it is conducted. Surveys also help us reflect and better understand the subject under study beyond the results obtained.
A few days ago, the European Banking Authority (EBA) published the Risk Assessment Questionnaire (RAQs), a semi-annual survey of banks and analysts aimed at identifying risks and vulnerabilities in the sector in Europe. The survey covers everything from the business model, strategy and profitability—with specific sections on fintech, sustainable finance and operational risks—to liquidity and balance-sheet composition. In this survey, conducted last autumn, the sample of both banks and analysts increased, making it even more representative of the euro area sector than the previous one.
If we focus only on the results of the questions addressed to banks, more than half defend their current business model. The remaining 37% acknowledge that they are making changes for strategic reasons and in response to pressure from non-bank competitors. The digitalisation demanded by customers is key in this transformation process, although a significant share of European credit institutions interpret it only as moving traditional operations into the digital sphere. Profitability is undoubtedly a challenge, although almost 70% consider it to be in line with a cost of capital that has been trending downwards. When making forecasts, more than half of banks anticipate that profitability could increase over the next 6 to 12 months.
Efficiency is key to strengthening medium-term stability. As for where to place greater emphasis to achieve it, European institutions focus equally on increasing income and reducing expenses. To offer their products and services to consumers and incorporate all possible improvements, banks must incur significant investments and costs, both technological and in human resources. Any good service requires appropriate payment to sustain it and a reasonable return to improve it, so it is important that customers understand the value of the service they receive. A price that will depend on each bank’s commercial strategy, set according to its own criteria and analysis of the economic environment at any given time.
The survey also addresses banking consolidation in Europe, which authorities consider necessary in the current environment and have persistently called for. The debate on excess capacity arises in a context of growing non-bank competition favoured by regulation, with zero official interest rates and an exceptionally expansionary monetary policy, alongside society’s full digital transformation. Banks’ approach to corporate transactions, as reflected in the survey, is far from uniform. Nevertheless, 70% link the possibility to institutions of the same nationality. Among the obstacles they cite are complexity, the costs and risks involved, as well as regulatory and supervisory requirements.
The challenges for European banking are multiple and clear. But no less important are the challenges facing the European authorities, ranging from reducing vulnerabilities generated by potential excesses in monetary policy, to eliminating regulatory grey areas for companies that are not banks but offer banking services, as well as completing the banking union for the benefit of customers. All of this can drive the desired banking consolidation.
The new digital era also features prominently in the survey. Operational risks are, in most cases, linked to cybersecurity, which has long been a priority for European banks, committed to continuing to offer the same security and trust to customers regardless of their channel of interaction. Banks also maintain various strategies for collaboration and investment in fintech, recognising its disruptive nature and the experience accumulated over a decade of development.
Finally, the survey also shows the growing importance of sustainability in banks’ strategy. 80% already offer green mortgages or plan to do so.
The environment in which banks operate is not without difficulties, both those arising from their activity and those originating exogenously, as the authorities acknowledge. But banks have the right attitude and tools to address them. Innovation and adaptability are in their DNA. What for others are only risks, for banks are opportunities that ultimately benefit their customers—their reason for being.
José Luis Martínez Campuzano, Spokesperson for the Spanish Banking Association
