Since the second quarter of the year, results of the Spanish banking sector have been substantially affected by the resolution and sale of Banco Popular to Santander in June. As a result of the transaction, Banco Santander announced losses of € 12,128 million in Banco Popular, subsequently increased to €13.560 million. This is the main reason for the net after -tax loss of €3,920 million posted by the sector as a whole for 2017, compared with the profit of €6,003 million in 2016.
Revenues remain weak, basically due to the interest rate environment and the deleveraging of the private sector. Total revenues fell by 3.5% in 2017. The strength of fees and commissions (up by 6.2% for the year) was not enough to counteract the 4.4% fall in the net inter est revenue and the 10% decline in trading gains and other income.
Operating costs remained under control, although they increased slightly (by 1.1%) over the course of the year, due in particular to the 2.3% increase in general costs, which in turn was pa rtly due to the costs of integrating Banco Popular into the Santander Group. As a result of these movements in revenues and expenses, the system’s cost-to-income ratio deteriorated to 57.1% and the pre-provision profit fell by 9%.
Provisioning increased by 65% in 2017 and “other income ” showed a negative balance of €11,586 million. Several effects of the Banco Popular resolution were recognised under these headings: 1) losses of €7.8 billion on write- downs of real estate assets; 2) non- monetisable deferred tax assets of €982 million; 3) €1,137 million of goodwill impairment ; and 4) an adjustment of €400 million in Banco Popular ’s held- to-maturity bond portfolios.
With data to February 2018, the balance sheet of the system held practicall y steady in year-on- year terms, totalling 224% of GDP (234% one year earlier). The number of employees and bank branches in the system continues to fall (by 31% and 40% respectively from the highs of 2008). Lending to private sector residents continues to decrease in year-on-year terms (this is analysed in greater detail below), as does the volume of fixed income portfolios. On the other hand, there were increases in lending to non- residents, equity holdings and in particular interbank lending (including the liquidity provided by the ECB) , which was up by 42% relative to February 2017, but down 11% since last December.
On the liabilities side, the volume of banks’ outstanding debt at the end of February 2018 was up by 16.5% YoY, although practically unchanged from year -end 2017 at 8.6% of the balance sheet total. Sight and term deposits at the same date were down by 1.9% YoY. Once again we are seeing the shift from term deposits to sight due to the low level of remuneration. Recours e to ECB liquidity follows the trend of previous quarters, with an increase of 13.5% YoY as at the end of March 2018. As for the cumulative volume of equity in the balance sheet (capital plus retained earnings ) it is 27% more than at the onset of the crisis in 2008.