It didn’t take long for Alejandra Kindel\u00e1n (Caracas, 51 years old) to experience a banking crisis: less than a year since she took over the presidency of the Spanish Banking Association (AEB). The sector maintains that Spanish banks are safe and will not suffer contagion from the crises caused by Silicon Valley Bank (and other US regional entities) and Credit Suisse. Kindel\u00e1n argues that in Spain, management is better, business models are more secure, balance sheets are stronger, and supervisors are stricter. <\/p>\n
The conversation takes place at one of the tables in Kindel\u00e1n’s office, where there is a sculpture gifted by her former colleagues from Santander. It depicts a trapeze artist with a bar, with two weights at the ends, maintaining an seemingly impossible balance supported on a minimal base. The figure is perhaps an allegory of her work: preserving the unity and prestige of large, medium, and small banks that compete with each other, while trying to group them into sectoral agreements and defending them against public authorities. <\/p>\n
This position as president of all and none allows her to sidestep some questions about the banks’ behavior, but it does not hide the need to better explain why it is good that they are making record profits and the reasons why their executives are the highest paid in Europe. In 10 months, she has created a general directorate to group various departments and has broadened the focus on reputation and communication. She confesses to admiring small entities, which are so close to the customer. She admits that these are, perhaps, her greatest discovery. <\/p>\n
Let’s start with the latest crisis. What lessons can be learned from the collapse of Credit Suisse and Silicon Valley Bank? <\/strong><\/p>\n The first is that these cases have nothing to do with the business model or the situation of banking in Spain. Each has its peculiarities: Credit Suisse (CS) had been subject to persistent news about its financial health and management for months, even years. The exposure of Spanish entities to CS is residual. On the other hand, the analysis of the trigger, Silicon Valley Bank (SVB), is interesting. Its business model is completely different from the Spanish one, as it is based on taking deposits without diversification, from digital companies within a specific ecosystem. It collapsed due to an asset-liability imbalance after suffering a liquidity demand. This cannot happen in Spain. <\/p>\n Why do you believe something similar cannot happen?<\/strong><\/p>\n Spanish banking has an excellent capacity for risk management and operates in a completely different reality. It is a commercial bank with loans as its traditional asset and with diversified liabilities, mostly guaranteed deposits. These figures clearly highlight the differences: on the asset side, in SVB, the proportion of public debt to total assets was 55%, while in Spain it is 13%; SVB was a bank that hardly lent, whereas in Spain, credit accounts for 58% of total assets. <\/p>\n On the liability side, at SVB, only 11% of deposits were covered, compared to the Spanish model where retail depositors are the main source and exhibit stable behavior. In Spain, 96.5% of account holders have balances below 100,000 euros and are therefore covered by the Deposit Guarantee Fund. <\/p>\n How has the different regulation in the United States and Europe influenced this crisis?<\/strong><\/p>\n To the above conditions, it must be added that the European regulatory framework applies to all entities, as opposed to only systemic ones in the United States. The lesson we can draw from this episode is the maturity, the capacity for risk management, and the security provided by the Spanish banking business. <\/p>\n Furthermore, we must not forget that profitability is the first line of defense. These profits, which some criticize for their large magnitudes, are what allow capital to be strengthened to provide more credit to individuals and companies and enable them to develop their projects, generate wealth, and create employment. Another lesson we can draw is the need to complete the Banking Union to minimize the chances that episodes like those we have experienced in recent days will affect healthy banks. <\/p>\n Nevertheless, the sudden rise in interest rates and the depreciation of public debt are behind this crisis. How will this situation affect Spanish banks’ portfolios? <\/strong><\/p>\n It is true that the rise in interest rates is changing monetary conditions very rapidly. It is also true that the main function of banks is to manage risks such as interest rate risk or liquidity risk. <\/p>\n I believe that in the triggering case of this episode, SVB, it is due to a very peculiar business model combined with poor management of these risks. In the Spanish case, the supervisor himself has highlighted the good management of risks. Entities are well-positioned, with a re-pricing of assets superior to that of liabilities. The capital position is solid, and Spanish liquidity requirements are above European ones. We can be confident in how our banks manage risks; we saw it during the decade of negative rates and in the current circumstances. <\/p>\n Changing the subject, do you have the feeling that, between record profits, high salaries for Spanish bankers, and the non-remuneration of bank deposits\u2014despite their European competitors doing so\u2014the sector is experiencing a perfect storm that makes its defense difficult?<\/strong><\/p>\n Let’s take it one step at a time. We need to better explain the banks’ results. We have some of the largest banks in the world, and they generate the minority of their profits in Spain. Furthermore, we are coming from exceptional years, with zero or negative rates that created a very complicated environment; and the regulator insists that our main objective is to make money to be profitable and able to grant loans. In Spain, we have already seen what a major crisis looks like when entities are not profitable. <\/p>\n Regarding salaries, the regulator monitors them because they are transparent and to ensure they do not incentivize risk. In fact, many of the millionaire bonuses are staggered over three or even five years, and if a person’s management during that period has a negative impact on the bank or its shareholders, part of that remuneration can be withheld. Furthermore, in Spain, we have the best banks in Europe and possibly the world; if we want to retain and attract that talent, we have to pay for it. As for deposit remuneration, we are coming from a period of excess liquidity that is still present. Entities will adapt to the environment later on. <\/p>\n Do you think the banking sector’s image problem would improve with more explanations?<\/strong><\/p>\n Yes, we need to better explain what the sector does so that it is perceived as helping families and businesses progress, to remind people that it supported society during COVID-19 with open offices, providing 140 billion in ICO loans. We must also explain that bank profitability is good and that profits will strengthen capital and dividends. We will do more educational work to restore the image. <\/p>\n You have signed several agreements with the Government; now the most controversial is the one on aid for mortgage holders in trouble, while part of the Executive demands a freeze on the increase in variable-rate installments. How do you view this situation? <\/strong><\/p>\n It is a good agreement to help those who may be struggling the most, and it took us months of negotiation because it is a very sensitive and technically complex issue. It is an enormous portfolio, 500 billion, and it is very important that it remains healthy, while at the same time, we help those who may have temporary liquidity problems. Any change in the conditions of these mortgage contracts\u2014such as extending the term, lowering the rate, or granting a grace period\u2014could lead to the loan being considered non-performing, even if the client has the capacity to pay. That is why, when I hear that we have to freeze the installment, I don’t know if people are aware that delinquency could double or triple overnight, and we would run into difficulties: banks would have to go to the market to announce that they have a very high delinquency problem, something that would remind us of what we saw in the past. The Bank of Spain participated in the conversations with the Government to explain these problems. <\/p>\n And with such a freeze on installments, could that reaction of ceasing to grant credit to lower-income clients to avoid delinquency occur, as some bankers have suggested?<\/strong><\/p>\n One of our concerns was to seek greater protection and ensure that the measures did not lead to exclusion. I believe we must preserve the crown jewel, which is a mortgage market that has provided access to home ownership for over 70% of families in Spain, something unique in Europe. <\/p>\n Don’t you think the negotiation lasted too long and caused reputational damage?<\/strong><\/p>\n The negotiation time was related to finding a balance between debtor protection and portfolio care. The aspect of IT costs is particularly relevant for small entities. But the duration of the negotiation process was due to seeking that balance and addressing the ministry’s requests so that they would not generate risks and would be manageable, although they logically have a cost. <\/p>\n Another controversy, inherited from your predecessor, has been the conflict of older people against the extreme digitalization of banking. Will you put an end to this problem? <\/strong><\/p>\n It is not a closed issue, although a great deal has been done, as its leader, Carlos San Juan, admits. During the pandemic, digitalization accelerated significantly in all aspects of life, including banking. When we emerged, we realized that some of our clients were unable to keep up with that pace, or did not want to digitalize. The sector responded quickly: 82% of AEB banks’ branches have extended hours with in-person teller service, preferentially for older people, which has been used by six million seniors, out of a total of almost nine million people over 65. In addition, 91% of ATMs have been adapted to the needs of this group. Together, we must strive to help older people in this process. <\/p>\n Another front with the Government is the tax on income. What will the sector do? <\/strong><\/p>\n It is bad for the economy because it subtracts 3 billion that could go to capital and be converted into 50 billion in credit, which is 250,000 average mortgages. In this uncertain environment, it is not the time to remove that capacity from the sector. And it is bad for the six million small bank shareholders who receive a dividend that supplements their income. And the worst of all is the noise this generates, the improvisation with which it has been done, without public consultation, which leads to poor regulatory quality. <\/p>\n And all this is accompanied by a very negative tone; the Government says it imposes the tax because banking is against society. They recall the bank bailouts, but those rescued were the old entities that failed due to poor management and strong political interference; that seems like a great fallacy to me. Banking contributed 23 billion to the Deposit Guarantee Fund and more than 3 billion to Sareb. We are happy to lend a hand, and we are doing so with measures for the elderly, the commitment to rural Spain, aid for mortgage debtors, and a higher tax rate; we pay 51% of profits in all types of taxes. Spain is, along with France, the country where banks pay the most, even before the new levy. <\/p>\n Do you think you will win in court?<\/strong><\/p>\n We are awaiting the decision of the National Court. Both AEB and CECA decided to appeal, with an identical text, the Ministerial order. We do not like the substance or the form of this tax, which we learned about on television during the State of the Nation address, and which has followed an urgent procedure, without a public hearing. And, furthermore, with a targeting of the sector that does not help us work towards what unites us. <\/p>\n Regarding its justification, the bailout is mentioned, even though the Government knows that the depositors of entities with strong political interference in their management were rescued… with consequences that we all know. It is bad for the economy, it discourages credit, and also for small shareholder savers, who number 6 million in Spain. <\/p>\n This tax, unique in Europe, will position us as the European banking sector that pays the most taxes.<\/p>\n However, you also have enormous amounts of tax credits, with which you deduct many taxes…<\/strong><\/p>\n Well, those are taxes we have already paid and are adjusted for having been taxed at the time, as if we had profits that we ultimately did not have (due to the effect, among other things, of provisions). The sector has an effective tax rate of 24%. <\/p>\n Another social reproach has been that banks have abandoned rural Spain, the ’emptied’ areas. What are you doing to serve these customers? <\/strong><\/p>\n First, we have assessed the problem and know that there are no branches in 243 towns with more than 500 inhabitants. We are going to find a physical contact point in the next 10 months, whether it be agents, buses, or ATMs. In the first quarterly report, which we presented a few days ago, 79 municipalities have already been covered, one-third of the total. 70,000 people now have at least one in-person contact point in their municipality. <\/p>\n For those with fewer than 500 inhabitants, which are many and very dispersed, we have an agreement with Correos for rural postmen to deliver cash to the last house. And we are looking for other ideas, agreements with shops, bars, etc., to make cash accessible. <\/p>\n Soon after arriving, you encountered the conflict of older people demanding better service from financial institutions. Is this problem resolved, or are the complaints still coming from this group justified? <\/strong><\/p>\n We have provided quick responses adapted to the needs of older people, and we also maintain a permanent active listening process to react to issues that may cause concern. The most recent example is with savings passbooks, an important product for this group: the sector has committed to maintaining them for those over 65. In addition, the sector has doubled the number of branches with extended teller hours compared to a year ago, 81%, and 6.3 million people over 65 have used this service. Digital platforms have also been improved by 80% to have simplified menus, with larger font sizes, and we are working to ensure that those who want to operate digitally can learn: 245,000 people have received digital literacy and financial education courses. And 70,000 bank employees have received specific training to improve service to this group. <\/p>\n You are a couple of weeks away from completing your first year at the head of the employers’ association. What positively surprised you, and what have you had to change? <\/strong><\/p>\n What I liked most was getting to know the peculiarities of the sector better because, although I had been at Santander for many years, where I learned many things, I was not familiar with small, specialized banks… I have seen how all of them are attentive to their customers and to improving digital banking. We have strengthened our capabilities to contextualize the country’s sociopolitical reality, banking, and reputational issues. <\/p>\n Banks had record results in 2022 in most cases, but how do you think the sector will perform this year?<\/strong><\/p>\n The starting point is good; the sector is very healthy, although they anticipate a certain increase in delinquency throughout this year, starting from a low current level despite the economic slowdown. Everyone is surprised at how positively we have reached this point, although they are aware that the economy is slowing down and that rates will continue to rise. <\/p>\n If rates did not stay at 3% and continued to rise to 5%, could there be defaults and an increase in delinquency?<\/strong><\/p>\n Families have to withstand the increase in many costs at once, which is why the agreement with the Government to help those with mortgage problems was very wise. In any case, even if rates continue to rise, we would not be in a situation like the 2012 recession, with falling housing prices, enormous levels of debt, and soaring unemployment. <\/p>\n You come from directing Santander’s Research Department. Now you must be seeing your colleagues’ difficulties in making predictions, almost all of which have failed, with a pessimistic bias, by the way… <\/strong><\/p>\n It is a very complicated time; there have been errors in predictions, but a war has arrived in Europe. Many black swans are converging, and it is difficult to manage the environment at the speed things are moving, although no one spoke of an economic debacle; it has been a matter of nuances. <\/p>\n Could problems arise from the maturity of loans granted during the pandemic with ICO guarantees?<\/strong><\/p>\n They were granted to viable companies, with liquidity problems but viable. The entities are not telling us that there is a widespread problem. I even believe that this portfolio has performed better than expected. Could there be cases? Yes, there will surely be cases, but there is no special alert. <\/p>\n To what extent are big tech and fintech companies a threat?<\/strong><\/p>\n They are both a threat and an opportunity. We have many collaborations with fintech<\/em> companies; they help to boost digitalization processes. But Google, Amazon, Facebook, Apple, and other tech giants have the capacity to occupy very large spaces and businesses. Furthermore, through the use of data, they can combine information about our behavior as customers and also obtain financial transaction information due to European regulations. This combination of data is brutal; Europe must ensure there is symmetry in data sharing: if banks provide data to big tech<\/em>, they must also offer the data they have on the entities’ customers so that the bank can combine it with its financial data. <\/p>\n Will the Basel regulation finally conclude this year after so many years of reforms?<\/strong><\/p>\n It is now in its final stages with the European authorities. If it does not conclude in the coming weeks, under the Swedish presidency, it will be under the Spanish presidency; it will be a milestone for the future presidency. I believe it represents a balanced agreement, and the initial increase in capital requirements for banks has been moderated. It’s a shame that only a small portion of US banks will comply with it. <\/p>\n You have explained that the entire sector is advancing in financial education and digital training for customers. What tools do you use? <\/strong><\/p>\n AEB, CECA, and the Rural Savings Banks, UNACC, have grouped our initiatives on the Aula Financiera y Digital website, where we conduct more than 4,000 activities, such as workshops for high school and primary school teachers, as well as videos, podcasts, etc.<\/p>\n