Banks finance the needs of families and businesses. To do so, they manage the risk of banking intermediation, a maturity transformation that channels society’s short- and medium-term savings toward financing that sustains medium- and long-term growth. This is why banks are essential to the economy, and any regulatory change should consider the long maturity of a significant portion of institutions’ loans. In Spain, the best example is the mortgage-backed loan.
To continue investing and meeting customer demands, banks must be profitable. The experience of the recent crisis has made it clear that those that do not make money become a problem for society.
Improved profitability is related to a change in the banking model and is linked to innovation for greater efficiency and better service to a customer who demands added value. However, profitability also has its own constraints, from regulatory uncertainty to distorting monetary conditions. Furthermore, for profitability to improve, it is necessary to overcome the burdens of the past that limit banks’ scope of action in their ultimate objective: generating prosperity.
Spanish banks are making a significant effort to reduce their non-performing assets. At the end of 2016, they were estimated at over €190 billion, a figure that is being substantially reduced by cutting non-performing loans and through real estate asset sales. European authorities are asking banks to eliminate this type of asset and may require additional provisions. In Spain, part of these assets supported social measures carried out by banks during the crisis. Once the crisis has been overcome, the sale of these properties to real estate management specialists must be addressed. The best contribution banks can now make to overcome the consequences of the crisis is to promote financial inclusion and sustainable growth through the best possible financing.
It is essential that there be regulatory clarity so that banks can carry out their mission. Their success, which is also society’s success, requires breaking with the burdens of the past that may condition future strategy. Reducing non-performing loans and foreclosed assets on the balance sheet is a priority for all.
