Spanish banks have obtained these profits without requiring public capital assistance or resorting to the transfer of problematic real estate assets to Sareb.

It is necessary to deepen the Banking Union, implementing the single supervisor in the eurozone as soon as possible as a necessary step to achieve a common resolution system that ensures a sustainable framework for financial stability.

The AEB Secretary General, Pedro Pablo Villasante, considers that the attributable profit of Spanish banking groups in the first quarter of 2013, although 16.6% higher than in March 2012, remains modest as a consequence of the still difficult economic and financial environment in which it was generated.

Indeed, the environment has not been conducive to banking activity, as the economic slowdown has been accompanied by a widespread decline in interest rates, which has negatively affected the interest margin and increased non-performing loans, with the consequent need to make still-elevated provisions, as explained by Pedro Pablo Villasante during the presentation of Spanish banks’ results for the first quarter of 2013. However, he indicated that the recognition of extraordinary capital gains has allowed the results obtained to compare favorably with those published in the same period of the previous year.

Despite this difficult environment, he expressed confidence that the 2013 income statement will improve progressively throughout the year, given that the still-elevated provisioning effort will be lower than the extraordinary provisions made in 2012, while the decline in the financial margin is expected to be corrected in the final part of the year.

Nevertheless, he emphasized that during the first quarter a significant provisioning effort was maintained, with €5,762 million allocated, representing 60% of the operating margin, an amount similar to that of the first quarter of 2012, which already included part of the extraordinary provisions for real estate assets established by Royal Decree-Law 2/2012 of February 3.

From 2007 to March 2013, provisions made against the profit and loss accounts of Spanish banks total €146,549 million, double the €73,493 million in attributable consolidated profit for that period and three times the amount reached before the crisis.

The AEB Secretary General emphasized that this provisioning effort and the results obtained have been achieved without Spanish banks requiring public capital assistance or resorting to the transfer of problematic real estate assets to Sareb.

In this regard, Spanish banking groups have continued during this first quarter of the year to improve their capital ratios. Thus, as of March 31, 2013, their capitalization level remained well above the minimum requirement of 8%, with a BIS ratio exceeding 13%, reflecting an excess of equity over minimum requirements of approximately €54,889 million. The highest-quality component of the solvency ratio, core capital, stood at 10.77%, 67 basis points higher than a year earlier.

He also referred to the improvement in the efficiency ratio, which remains at an excellent level and among the best in international commercial banking, despite the fact that Spanish banks have incorporated new entities, both within and outside Spain, that operated with lower efficiency levels.

Regarding the financial environment, Pedro Pablo Villasante noted that the year began with a widespread improvement in conditions in the financial markets, a circumstance that Spanish banks have leveraged to resume issuing medium- and long-term debt and reduce their dependence on the ECB, repaying part of the funds obtained from the LTRO programs at the end of 2011 and the beginning of 2012.

However, he clarified that this relative improvement does not mean the situation is easy. After five years of crisis, the Spanish economy and other European economies have entered a second and prolonged recession. Added to this are financial volatility and the threat of possible macroeconomic and financial shocks. “We continue to suffer the effects of the renationalization and fragmentation of the European financial market, which prevents the transmission to the real economy of common monetary policy impulses, as the interest rates applied by banks respond more to the risk premium of each country’s public debt than to the European Central Bank’s intervention rates,” he explained.

For all these reasons, he considered it necessary to deepen the Banking Union, implementing the single supervisor in the eurozone as soon as possible as a necessary step to achieve a common resolution system that ensures a sustainable framework for financial stability.

Furthermore, he insisted that to emerge from the crisis it is necessary to find a balance between the application of budgetary austerity policies and measures that promote economic growth and job creation, which in turn would help achieve the necessary fiscal consolidation in a less traumatic manner and reduce the social cost resulting from the established adjustments.

Pedro Pablo Villasante indicated that the prolonged contraction of economic activity, the high level of unemployment, and the need for external public assistance to recapitalize some savings banks have revealed the weaknesses of the Spanish economy, making it necessary to continue persevering in their correction. Nevertheless, he expects that “2013 will become the bridge year toward the recovery of the Spanish economy.”

He also noted that the Troika, in the preliminary conclusions of its latest report on Spain, has recognized the improvement in the financial situation and the significant progress achieved in banking restructuring and in compliance with almost all the conditions imposed in the MOU for the financial assistance received last year from the European Financial Stability Mechanism.

Download press release

La entrada Summary of the General Intervention by the AEB Secretary General se publicó primero en Asociación Española de Banca.

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.

Download press release

La entrada The Secretary General of the AEB highlights that, amidst the crisis, Spanish banks have strengthened their competitive position and capital soundness. se publicó primero en Asociación Española de Banca.

The General Secretary of the Spanish Banking Association (AEB), Pedro Pablo Villasante, pointed out that these results demonstrate the ability of Spanish banks to manage their activity in a complex financial environment and in a context of deep economic recession, in which numerous international banks have been forced to report losses and have even had to be rescued by their respective governments. He also highlighted that the profits for the first quarter of 2009 maintain a high level of recurrence, which, combined with the traditional cost containment of Spanish banking, has allowed our banks to make a significant effort in provisions.

All of this has placed profitability in terms of ROE (return on average equity) at 14% in individual accounts and 13.7% in consolidated accounts, rates similar to those at the close of the previous financial year and which represent a high multiplier compared to long-term risk-free investments.

Regarding solvency levels, the quality and high level of the BIS ratio stands out at 12.30%, which Spanish banks have achieved through their own means and without receiving any type of public aid after having increased their eligible own funds by 9.5%. Tier 1 stands at 8.43%, which is 95 basis points higher than a year earlier. Furthermore, as of March 2009, Spanish banks presented an excess of own funds of 43,746 million euros over the necessary regulatory minimums, 15.5% more than the excess existing a year prior.

Regarding the evolution of the different business margins, the increases in the net interest margin stand out, resulting from the defense of business volumes and the drop in interest rates, although it is foreseeable that this comparative effect will tend to moderate throughout the year.

The operating result recorded a 13.8% drop in the first quarter of the year after the significant effort made in write-offs, to which 4,135 million euros were allocated, almost 70% more than a year earlier. This effort responds to the growth of the non-performing loan ratio, which reached 2.95%. Consequently, the coverage ratio has decreased considerably to 77%, although it remains notably higher than that of neighboring countries.

In this regard, Pedro Pablo Villasante warned that it is essential not to confuse delinquency with loss, as most non-performing loans are usually recovered over time. This idea is supported by the fact that the credit investment of Spanish banks has a high degree of mortgage collateral that backs the possibility of recovering a large part of the investments.

The increase in delinquency reflects the deterioration of the real economy and the lower level of activity, circumstances that for Spanish banks have translated into generalized drops in credit demand and a worsening of the risk profile of their operations. Despite this recessive environment, lending to customers has grown by 4.3% and 12% in individual and consolidated accounts, respectively.

The drop in activity has also manifested in net fee and commission income, which has been reduced by 12.3% due to the sharp reduction in commissions obtained from the marketing of non-banking products and securities, explained by the transfer of investment and pension funds to bank deposits and the strong correction experienced by stock markets.

General expenses are growing in a contained manner, at a rate similar to that of the total consolidated balance sheet and to a much lesser degree in the individual aggregate balance sheet. The efficiency ratio has worsened, although it remains at more favorable levels than those of other financial systems.

The AEB General Secretary noted that a reduction in the number of branches and employees of Spanish banks can already be observed. In his view, the financial system must adapt its structures to the new reality of the market and the economy in which it operates to achieve new levels of efficiency. “The way out of the crisis involves greater consolidation of the banking system, both at an international and national level,” he said.

In the opinion of Pedro Pablo Villasante, the restructuring of the Spanish financial system must have the ultimate goal of making the banking system as a whole stronger; therefore, public money should not be used to recapitalize entities that are not viable and have not managed their risks well.

Download press release

La entrada The AEB General Secretary points out that “Spanish banks are generating profits in the midst of an unprecedented economic and financial crisis” se publicó primero en Asociación Española de Banca.