Last week, the Spanish banking sector began its third quarter results presentations, but analysts are going one step further and are already looking for indications ahead of 2016. The outlook is not wholly favourable if we take into account the factors affecting it on the downside. Namely: low interest rates, hardly any room for a further decline in the remuneration on liabilities, lower capital gains from financial operations, the stabilisation of commissions and the likely negative impact of the elimination of the “floor clauses.”
The only positive indicator is that referring to doubtful assets. It is highly possible that the sector’s non-performing loans ratio will fall below 10% in 2016, and even end up at around 8%.
Afi’s banking experts have summarised the situation as follows: the minimum recovery in retail banking revenues will not offset the sharp fall in wholesale banking income. And they give this example: unrealised fixed income portfolio capital gains dropped no less than 64% just in the March-August period.
So the banks will need to be more efficient and scrape away where they can now that the gravy train that was the carry trade (buying public debt in the ECB window at 1% and selling it shortly after at 4%)is a thing of the past.
The ROE (return on equity) is not going to return to pre-crisis levels of 12%, but at least it should be around 6-7%.
So what can be done to improve efficiency and profitability? As far as the first matter is concerned, we should remember that the Spanish banking sector is one of the most efficient in the eurozone. And it has also done the most to adjust capacity (cutting the number of branches and employees) since 2008.
However, credit is the black spot: the total outstanding amount in Spain continues to decline, despite the fact that new loans are being granted at a reasonable pace.
