In recent days, the main Spanish financial institutions have published their 2023 financial results, as well as the amounts allocated to taxes. Expenditure on corporate income tax alone amounts to over 12 billion Euros. The increase has been 70% in Spain, significantly higher than the 18% increase at a consolidated level, including the various countries where they operate. To give an approximate idea of the magnitude and relevance of this amount, it far exceeds the State budget allocated to Employment Promotion, or is four times more than that earmarked for Housing Access and Construction.
This notable amount, combined with other taxes and duties borne, places Spanish banks at the forefront in Europe as the entities that contribute the most to public coffers. Furthermore, both in Spain and in the countries where they operate, they are undoubtedly the sector that contributes the most, in relative terms, to maintaining the Welfare State.
In addition to this direct contribution, it is important to remember that by financing families and businesses and boosting economic activity, they foster an increase in tax revenue. Financing underpins economic growth, which is the basis upon which the State can increase its revenue.
In this regard, it is worth noting that any tax measure that limits the activity of financial institutions and hinders or distorts their ability to generate capital and access financing, only harms their capacity to finance the economy under the best possible conditions.
These results achieved in 2023 allow banks to recover the profitability lost after almost a decade of anomalous negative official interest rates. During this period, profitability was lower than the cost of capital, the return investors demand from banks and the requirement established in the markets to price capital and required financing, which highlights the progress of Spanish banks regarding this ratio.
Shareholder remuneration is key to valuing any company and one of the factors investors consider when investing in its capital. For many small savers, it is an essential supplement to their income. Thus, it is of vital importance for companies and, therefore, for the economy.
It is important to remember that banks’ profits, like those of any other company, should be compared in relation to the capital they invest to develop their business, and when rigorously analyzed, it can be seen that there is still room for improvement, because in terms of return on capital, investors do not consider it high.
In fact, the profitability of Spanish banks is still below that achieved by a good part of their European peers. It is important that it continues to improve, and thereby enhance their competitive capacity in a global financial world. In any company, profitability and sustainability go hand in hand. In banks, this is essential and fundamental for everyone given their prominent role in the economy. We can summarize that what is good for the economy is good for banks and vice versa.
Nor are the results high when compared to the size of the balance sheet. In Spain, return on assets barely exceeds 0.78%, reflecting the high existing competition and the need to continue reinforcing efficiency. At the European level, this low return on assets is one of the arguments repeated by the supervisory authority to explain the sector’s low stock market valuations, which are below its book value.
In some cases, we are also talking about international entities. Let us remember that more than half of the financial institutions’ results have been obtained outside Spain. The internationalization of some of our main banks is undoubtedly good news for everyone, because they also improve financial inclusion in the countries where they are established and support Spanish companies in their operations abroad.
A solid financial sector is fundamental not only for boosting economic growth and competitiveness, but also for supporting businesses and families in successfully overcoming the challenges they face in the future.
Solid and profitable banks like those in Spain are capable of strengthening their commitment to society through initiatives such as those implemented to improve personalized attention for the elderly, reinforce financial inclusion in rural Spain, or to promote, as has been done recently, measures focused on alleviating mortgage debtors in difficulties due to the rise in official rates implemented by the European Central Bank.
The improvement in banks’ results and profitability is, ultimately, a benefit shared by all.
José Luis Martínez, AEB spokesperson
