The Spanish banking sector in 2020: Renewed risks

The Spanish banking sector in 2020: Renewed risks

Fecha: abril 2020

Santiago Carbó Valverde, Francisco Rodríguez Fernández

Banca, COVID-19, Impacto económico, Medidas económicas

Spanish and International Economic & Financial Otlook, SEFO, V. 9 N.º 2

2019 was a challenging year for the Spanish banking sector, as was the case for most European banks. The downward revision to macroeconomic forecasts and the associated shift in monetary policy, prolonging the outlook for ultra-low rates, was largely responsible for the fact that Spain’s six largest banks saw their aggregate net profit decline by 18.4% to 13.59 billion euros in 2019. That correction, which was in line with the dip observed in the rest of the eurozone, in conjunction with crosscutting geopolitical and structural shocks (trade and technology tensions, respectively) and ad hoc developments of an unforeseenmagnitude (particularly the Covid-19 virus) are having a very adverse impact on the banking industry’s market value. The largescale measures approved by the Spanish government, particularly those related to an ambitious financing and public-private guarantee scheme, together with the measures announced by the ECB –a 750 billion euro asset purchase programme for the eurozone– are intended to mitigate this impact. The difficulties facing banks are not confined to the impact interest rates are having on asset prices, but also the issues being encountered in driving business volumes. On the one hand, regulatory pressure is considerable and loan approval policies are particularly cautious. On the other hand, demand for credit remains limited. That explains why, despite the low level of interest rates and NPL ratios of well below 5%, year-on-year growth in private sector financing remains stagnant. Specifically, financing for households increased by just 0.26% year-on-year last year, while corporate lending inched just 0.01% higher, down significantly from growth of 1.26% in 2018. Spanish banks continue to face considerable difficulties in 2020. There are several potential drivers of bank profitability, such as improved efficiency/asset quality, as well as investor perceptions of undervaluation. However, it remains to be seen whether or not some of the recent, unforeseen shocks will prove transitory, potentially dissipating in the coming months.

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