Spanish banks: Benefits of international exposure and geographic diversification

Spanish banks: Benefits of international exposure and geographic diversification

Fecha: noviembre 2019

Joaquín Maudos

Banca, Internacionalización, Diversificación geográfica, Rentabilidad

Spanish and International Economic & Financial Otlook, SEFO, V. 8 N.º 6

The profitability of geographicallydiversified Spanish banking groups is 43% higher than that of their domestic business, evidencing the advantages of an international strategy. The key factor explaining the profitability premium is the high net interest margin earned by Spanish banks’ subsidiaries in third country places of business. This feature has become all the more impactful given the decline in eurozone interest rates. For example, consolidated groups’ net interest margin is more than twice (2.01%) that of the Spanish banking business (0.93%). While the level of international expansion of the Spanish banking system is high relative to that of many other systems (overseas investments accounted for 44% of the total), their geographic diversification is lower by comparison with the major European economies and the US. Notably, there are some ad-hoc risks to consider in countries where Spanish banks are active, such as Turkey and Argentina. Nevertheless, analysis shows that diversification has mitigated banks’ overall risk exposure. However, the benefits associated with diversification will remain limited within the eurozone until the EU completes its Banking Union.

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