The banking sector has gone from being part of the problem in the last crisis to part of the solution in the current one. It arrives with significantly better financial strength than in the previous recession but is not exempt from risks, both internal and external. Jos\u00e9 Mar\u00eda Rold\u00e1n, president of the Spanish Banking Association (AEB), is aware of this situation and sends a message to the authorities that, if the crisis worsens, they must be prepared to cushion the blow and do \u00abwhatever it takes\u00bb \u2013as Mario Draghi, former president of the European Central Bank (ECB), used to say\u2013 to prevent economic collapse. <\/p>\n
The EBA recently warned that Spanish banks are entering with the lowest capital levels in Europe. Does that mean that institutions here are more vulnerable than in the rest of the continent? <\/strong><\/p>\n <\/strong>We do not agree with that view. In terms of capital measured by risk-weighted assets, that is the situation. But if you look at the leverage ratio, without such weightings, we are among the best in Europe. If you also value by net equity on the balance sheet, we have one of the highest. We are not in a weak position. This solvency issue is not a beauty contest to have the highest ratio. It is about having reasonable capital according to your risks and business model. <\/p>\n The ECB, the EBA and the Bank of Spain are calling on the sector to improve profitability, including by diversifying income beyond net interest margins. Are they asking too much in a situation like the current one? <\/strong><\/p>\n It’s not easy. The same people who tell us we need to improve profitability are the ones who decide on an interest rate environment that is indirectly good for customers and for us, but it is tremendously difficult to make money in banking when your raw material, money, is worthless with negative rates. They need to encourage us to gain profitability, knowing that this requires diversifying business models, which may not be easy or even safe; the cost issue is the lever we have. Looking at it in perspective, over the last three years, the results we obtained with these interest rates were very good in terms of ROE. We had very significant consistency in results, very close to the cost of capital. In 2020 and 2021, everything will depend on what happens with the economy. But I hope that once this period passes, we will return to that strong and important path we were on, of recovering profitability, and approach that kind of cosmological constant which is the cost of capital. <\/p>\n You say that diversifying the business can be dangerous. What do you mean by that? <\/strong><\/p>\n The history of financial crises teaches us that when you step out of your natural business niche, which can be a banking model or a region, and try to imitate other successful models of people operating in other territories, there is also a risk of adverse selection of risks, meaning you enter as an operator at the last minute and take on the bad risks that no one else has taken until then. You have to enter segments you know and with great prudence. What is good is to build on your strengths, what you know, and grow from there, being careful with assuming new risks. <\/p>\n <\/strong>De Guindos, Vice-President of the ECB, told ABC that he was in favour of mergers. Will this be the time to see mergers in the sector? <\/strong><\/p>\n The history of banking in Spain is one where mergers have allowed the creation of efficient, profitable, and international institutions. Consolidation, in the face of profitability pressures, is one of the levers available to overcome this situation. Mergers do not have to be driven by public authorities, nor should they hinder them; rather, the two entities, or however many there are, must agree to carry out the operation. In the past, not in this country and this environment but in the European environment, when a merger operation was proposed that would lead to a more efficient entity due to the cost optimization it provided, many supervisors demanded more capital due to the execution risks of the merger. This makes no sense: if a merger is good for the solidity of the resulting institution, let it go ahead; let’s not raise objections in terms of capital. At certain times, this has prevented some of these mergers from occurring. These almost always result in a larger, more efficient entity with more levers to manage risks and better navigate certain periods. <\/p>\n You were very critical of the ECB’s recommendation\/obligation to suspend dividends in the sector. Why so much criticism? Because of public interference? <\/strong><\/p>\n <\/strong>It stigmatizes us as an industry and does not discriminate between the best and the worst. Discriminate between good and bad, go one by one, and don’t apply a blanket rule. We are the only industry where this has been decided. I’m not saying don’t tell a bank not to pay dividends, but justify it on a case-by-case basis. This kind of stigmatization is not good for attracting new shareholders. Investors don’t like the remuneration for risk to depend on an administrative decision \u00aburbi et orbi\u00bb (for everyone). We ask for discrimination and to go one by one. <\/p>\n No one doubts that non-performing loans will increase considerably. To what extent will this be a problem? <\/strong><\/p>\n Non-performing loans are a lagging indicator of economic crises and banking balance sheet risks. By the time it is reflected, the problem is already very present. In April, it decreased; obviously, we know this will not continue. Spanish banks have provisioned significantly in the first quarter; they have been very aggressive. They know what is coming, and we know there will be tensions in terms of higher provisions and higher non-performing loans. It is very difficult to predict to what extent. <\/p>\n Is any reasonable and expected level of non-performing loans manageable by the banking sector?<\/strong><\/p>\n <\/strong>Within reasonable limits, assuming an asymmetric V-shaped recovery, it is perfectly absorbable. But we all have to work together to make the recovery as symmetrical as possible. We are helping our clients so that they do not become a non-performing loan problem later; so that the largest number of companies can be saved. <\/p>\n Will banks with greater exposure to SMEs suffer more? <\/strong><\/p>\n It is very difficult to know. This is a pandemic that has forced us to confine ourselves for several months, which has hit the economy like never before… I don’t know how it will affect. Spanish SMEs are very fragile, but also very agile. SMEs, due to their size, have a great capacity for adaptation and response. We have seen restaurants transformed into home delivery companies or factories. In Central Europe, where companies are larger, they are more specialized and may find it harder to adapt to new circumstances. We underestimate the difficulty that a tremendously specialized medium-sized company can have. We have to wait and we can learn a lot from this crisis. <\/p>\n SMEs are among the main beneficiaries of ICO guarantees. The government has already released the promised 100 billion euros. Will it be necessary to extend these guarantees? <\/strong><\/p>\n We do not have a formed position. What we do state is that the guarantee program has worked very well, because we have been able to reach companies quickly; we are the country that has reached its companies most quickly, along with France. Speed is very important because if you have a very generous program, but it is not set up until December, by the time it reaches companies, they will not need liquidity because they will have perished. It must be remembered that banks provide these 100 billion euros; we have been able to act very quickly and solve the problems of companies with temporary liquidity difficulties. In the future, we must be attentive to the existing needs in the Spanish economy to do, as Mario Draghi would say, \u00abwhatever it takes\u00bb to minimize the cost of this crisis. In other countries, in addition to financing support positions, there are also lines of support for company capital, through subordinated debt, capital injections… Let’s see where we are, what other countries are doing, and be open to whatever needs to be done in the future. <\/p>\n Hern\u00e1ndez de Cos, Governor of the Bank of Spain, recently rejected the creation of a public bank. Do you believe this figure is necessary? <\/strong><\/p>\n Politically, we are very neutral. It is a decision that the Government and Parliament will have to make. As a taxpayer, the experience of public banking is not good. Banks grant loans that must be repaid. If it is not to be repaid, it is not a loan, but a subsidy. Perhaps you need other instruments; maybe it’s not bad to give subsidies, it can be considered, but let’s not call it banking activity. We are not afraid to compete with a public bank because we know our business and what it is. And we already have a public bank, the ICO, which works magnificently as we have seen. <\/p>\n