Despite the fact that the main Spanish financial institutions commented during the presentation of the closing results of 2020 that they practically no longer needed any more extraordinary provisions derived from the economic crisis caused by Covid, the Bank of Spain believes otherwise. The supervisor, in fact, has warned that the uncertainty about the scope of the economic crisis continues to be “very high” and considers that the bank will still have to make a “significant effort” in provisions this year to face the increase in non-performing loans. . In 2020, financial institutions provided 40,000 million euros in the face of a possible rebound in defaults.
The general director of supervision, Mercedes Olano, recognizes, in fact, that in 2020 the banks already made important provisions and will be able to consume them as defaults increase, but considers that more will be needed, although the volume will depend on how much the delinquency increases. , and that ensures that it cannot be calculated now.
At the end of last year, the delinquency of the Spanish banks stood at 4.51%, the lowest level since April 2009, so it would have to triple to reach the maximum levels of the previous crisis, as explained by Olano during the presentation of the 2020 supervision report.
These new provisioning needs will once again negatively affect the profitability of the sector, which will be reflected in the ROE (return on equity), although the Bank of Spain is confident that there will not be a very strong impact on recurring profitability, the that is linked to the business itself. For the moment, profitability is between 5% and 8%, remaining below the estimated cost of capital “, reads the supervisory report.
It is in this context that mergers become more relevant to help reduce costs. The Bank of Spain thus defends more integrations as a formula for financial institutions to improve their profitability, despite the fact that last year two corporate operations were approved, that of Bankia and CaixaBank, on the one hand, and that of Unicaja and Liberbank, on the other. , which will give rise to the first and fifth Spanish financial entities, respectively.
The governor of the supervisory institution, Pablo Hernández de Cos, explains in a letter collected in the supervision report that the “consolidation processes of the sector, which were revitalized last year in our country with the announcement of two large operations, may be an additional useful instrument to face the challenges of the future in a better position, although an individual evaluation of the merits of each merger proposal is necessary ”.
Mercedes Olano also supports mergers, of course, and ensures that despite the two large operations carried out in 2020 and the high number of office closures, “we are still far from a banking oligopoly in Spain. Competition is very much alive in the sector ”. Remember in this sense that there are 10 significant entities in Spain, and “quite a few” smaller ones.
The director also defends the closure of more offices, despite the fact that 51% of the network have already been closed since 2008, and the reduction of staff, which will continue for the next two years, as explained in the presentation of the supervision report .
He considers, like the governor, that these are ways to reduce costs and improve profitability, he also maintains that now the trend is to increase the digitization of the sector, which is why there will be excess installed capacity and staff.
He explains that these closures will not lead to an increase in financial exclusion, since the banks have made a commitment with the national supervisor to maintain offices in rural areas, or, failing that, to replace offices with agents, to take to the most Unpopulated buses so that their inhabitants can operate, to leave ATMs open all day or to reach agreements with other possible providers, such as Santander with Correos, an alliance through which customers can enter and withdraw cash from offices of the state institution.
The Bank of Spain considers that there are still suitability requirements necessary to approve senior officials of financial institutions whose compliance it is concerned about and those it asks to pay more attention to.
The supervisor also pays special attention to the personal and professional conditions that independent directors must meet, including in some resolutions calls for attention so that they are aware of their duty to act as a counterweight in the boards and have sufficient skills to point out disagreements with the executives of the financial institution.
Companies. In the governor’s letter, which serves as an introduction to the supervisory report, Hernández de Cos affirms that it is important that “the volume of committed funds be permanently evaluated” in light of the evolution of the pandemic. In relation to government aid due to the negative effect of Covid, especially credits backed by the ICO, and direct aid. It points out that it is “particularly relevant a rapid and homogeneous execution” of these measures and that the distribution mechanisms allow targeting “selectively these aid precisely to viable companies, but with solvency problems.” And in the case of non-viable companies, he believes it necessary to streamline the liquidation processes to avoid the use of resources that could be more beneficial in other activities.
Sanctions The Bank of Spain imposed sanctions on eight entities in 2020, despite the suspension of administrative deadlines between March 14 and June 1 due to the state of alarm over the coronavirus, initiated three new files and resumed one that had been suspended for years against a box. Transparency and protection of clients continues to be the area in which the most sanctions are concentrated, five of the twelve cases, three against banks, one against a credit union and another against a financial credit institution.