The ratings agency Standard & Poors predicts more mergers among medium sized Spanish banks, given the low profit margins that the sector is suffering, and that most are trading in the stock market below their book value. S&P believes that Spanish banks are well positioned, with sanitised balance sheets and favourable perspectives in terms of credit quality. However, the agency points out in its report that, after years of rating upgrades for Spanish banks, which have put them “very close to the levels of December 2011, and even before the crisis”, 2019 could also see some downgrades. The agency predicts that in 2019 toxic assets on the balance sheets will continue to be reduced and that the main challenge will remain improving profit margins which remain at historic lows. In fact it is this low profitability which will drive consolidation this year which will help achieve synergies, economies of scale and cost cutting.
At the European level, S&P believe it is very unlikely that there will major cross-border mergers this year, despite the political interest in Europe that there should be. The report signals that “Banking Union is still not complete and the execution risks are greater than in domestic consolidation, where it is easier to find synergies”. Finally, S&P rules out 2019 being the year in which the State gets out of Bankia, where it controls 61.4% of the capital. Rather it predicts a “very gradual” process of withdrawal.
S&P has also presented its growth forecasts for Spain: 2.6% for 2018, 2.3% for 2019 and 2.1% for 2020. The agency anticipates a cyclical slowdown in growth, which it believes is reaching its potential. Currently S&Ps rating is A-, with a positive perspective, because of the “pathway” presented by the Government for debt reduction. They highlight that a primary surplus is expected for the first time in 2019. The agency left the door open for a rating review on 22 March. At the same time, it recalled that Spain´s pending tasks, like the continuing high levels of unemployment.
