Why is the ECB so demanding with Spanish banks?

ecb stress tests

The common European supervisor, which must prove its good work at this new responsibility’s performing, has absolutely ignored those suggestions: it will only accept independent assessments with figures from January 1st of 2013 on.

This disagreement underlines the importance of banking sector results’s analysis. Bank of Spain has just published the industry, and one can come to relevant conclusions considering 2014’s stress tests.

The first conclusion is that Spanish banks achieved a net profit of € 8.8 billion thanks to provisions, although half of this came from taxes reimbursements (€4,6 billion). The result can be seen as positive, especially if it is compared with losses of more than € 1.6 billion the whole sector had in last year.

The problem is how this profit has been achieved. Recurrent revenues of Spanish banking industry continue to fall and it represents its greatest challenge. Interests’ margins reached € 26,8 billion, which meant a yearly drop of 18.1%, as a consequence of low interest rates and high volume of unproductive assets in balacesheets. At least, cheaper retail deposits and higher revenues from fixed income securities (around 26% of 2013’s overall financial income) have partly smoothed that contraction of margins.

Spanish analysts at Afi have released an specific report on those results. As for assets, they point to general losses in all credit segments; the additional deterioration of corporate loans; the timid descent of provisions, and public as well as private debt increase. As for liabilities, the report highlights the positive evolution of retail deposits and also capital base reinforcement.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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