Despite the fact that many banking sector ratios are improving, the Bank of Spain in its November bulletin has once again called on the industry to adjust its business model and even adapt its corporate strategy to a demanding economic and regulatory environment.
The request, already made at different times by the Bank of Spain governor himself and by the deputy governor, means embarking on a new sector reform in a context which affects all the lenders: interest rates close to 0% which could stay that way for some time, a slowdown in banking activity, a high level of doubtful assets, the intensifying slowdown in the emerging economies and the correction in financial asset prices.
The Bank of Spain takes very great care to put in writing what type of “business model adjustment” or adaptation of “corporate strategy” should take priority. But the first of these requirements is usually implemented through a reduction in labour costs by not renewing temporary contracts, or by cutting the variable part of salaries or firing employees on indefinite contracts. At least these were the usual methods used by companies faced with a decline in activity due to the crisis, according to a Bank of Spain research report.
These measures would be complemented with branch closures, a rise in commissions, an increase in the digitalization of services or the suspension of dividend payments amongst shareholders and, just for a change, a reduction in investments.
As far as “corporate strategy” is concerned, this expression currently only means one thing, namely “consolidation.” Formerly referred to as “mergers” between the lenders, this will fuel a new, radical redesign of the Spanish banking map. As a result, the number of lenders operating in Spain will be significantly reduced.