A new round of mergers amongst Spanish banks could just be round the corner. And we’re not just talking about market rumours, or “off the record” comments from bank directors, or the warnings from international organisations about the banking sector’s delicate health. Now it’s the Bank of Spain which has once again stepped up to the podium to highlight that, in the words of deputy governor Fernando Restoy, “the possibility of alliances or mergers to improve efficiency should not be ruled out.”
The Bank of Spain has lost supervisory authority, but it still has the power to influence any movements in the sector. And Restoy’s comments can only be interpreted as a kind of kick-start for a new round of mergers.
Four years ago, there were 56 banking institutions in Spain, now there are only 14 after the restructuring carried out by many former savings banks. And it’s very likely there will be more mergers between domestic banks, as well as with international players, and the sector will be reduced to handful of lenders.
“We have similar challenges to other European banking systems,” Restoy said, referring to the banking business’ low profitability which has got worse in the last few months due to low interest rates.
The Bank of Spain has called on the banks, in its usual roundabout way, to “intensify strategic reflection” due to the “industry’s low profitability.”
It’s not the first time that Restoy has talked about possibility of bank mergers recently. He also did so in the summer, which gives an idea of his involvement in the matter.
The OECD, IMF and the European Banking Authority (EBA) have recently highlighted the difficulty banks have to make money against a backdrop of practically zero interest rates. At the same time, they are facing regulatory pressures to strengthen their solvency, which will weigh on profitability.
Traditional banks also face an additional problem which is hardly ever mentioned in the international organisations’ reports: namely their business model, in the context of the new competition from so-called digital banks (not to be confused with the digital services offered by the banks), headed up by some of the big technology firms.
In the opinion of ACF analysts, the consolidation process could be speeded up by the upcoming rulings on the “floor clauses”. A favourable outcome for the class action suit will have a significant impact on the balance sheets of various banks. An unexpected slowdown in economic growth could also influence the process.
The “floor clauses” ruling (which has been expected since the beginning of September and will happen before the end of the general elections), will mean a hit of some 58Mn€ on Liberbank’s annual revenues, 130Mn for Popular, 165Mn for Sabadell, 200Mn for Caixabank and some 40Mn for Bankia.