Banks improve their profitability, but need more mergers, according to A&M

Spanish banks have recovered three profitability points (ROE) during the first quarter of the year, going from 3.53% in December to 6.59% in March, as a result of the lower pace of provisions, according to the report ‘The pulse to the bank ‘prepared by Alvarez & Marsal. Despite the recovery in profitability of a part of Spanish banking, the specialists of this consultancy maintain that the consolidation of the Spanish banking map has not finished, despite the merger of CaixaBank and Bankia, and Unicaja with Liberbank.

These new merger operations will be carried out by those entities that in the coming years will not be able to reach profitability levels close to 10%, or what is the same, that do not cover the cost of capital.

The ROE of BBVA (11.7%), Bankinter (11.8%), Abanca (12%), while CaixaBank (6.1%), Santander (6.3%) and Ibercaja (6.7%) sound the sector average. At the bottom are Banco Cooperativo Cajamar (1.6%), Sabadell (2.7%), Liberbank (2.8%), Kutxabank (3.9%) and Unicaja (4.3%).

The head of Alvarez & Marsal in Spain and Portugal, Fernando de la Mora, highlights that Spanish banks “continue the path of recovery of results”, driven by lower provisions for credit risk and accompanied by public aid programs, while that for the rest of the year a similar trend in profitability is expected.

The executive thus believes that the mergers will start from the “medium and small banking sector. Perhaps in the upper part it is not ruled out either, in Spain or at a pan-European level ”. The firm places bank delinquency after the economic crisis caused by Covid at a maximum of 7% in 2022, although it expects it to remain at 5% to 6%.

After the adjustments that the Spanish financial entities are carrying out, Alvarez & Marsal expects that efficiency will be below 50% in the coming years. Now it is at 55.9%. But, it will still be above the 45% target. Bankinter stands out as the most efficient bank in terms of business volume per branch, while Ibercaja and Cajamar obtain the worst results. CaixaBank reduces this efficiency as a result of the increase in branches after absorbing Bankia.


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