The credit quality of Spanish banks looks solid, despite the pull-back in reported profits. Solvency ratios sitting comfortably above requirements offer greater leeway for capital distribution and will result in higher returns, benefiting investors, says Scope Ratings. Spanish bank creditors should see the banks’ improved capital-generation capacity as a sign of strength, even if capital ratios have peaked for this cycle.
Bankia’s results were much better than market expectations, however, there are some uncertainties about its share price. The bank has achieved a profit of € 542 million, 23% less, with experts expecting a greater adjustment due to the bank’s efforts to get rid of unproductive assets.
Spanish banks, represented by 8 entities (Santander, BBVA, Caixabank, Sabadell, Bankia, Bankinter, Kutxabank and Abanca) occupy the seventh place worldwide by brand value and account for 4% of the total brand value of the banking sector, according to Brand Finance Banking 500 ranking of Brand Finance, the leading global independent brand valuation consultant.
J.L.M. Campuzano (Spanish Banking Association) | Companies and families have continued reducing their debt levels, down to 131.2% of GDP. Ten years ago their indebtedness exceeded 200%.
The ECB recently published a paper in which it reviews its monetary policy over the last 20 years. Among other points, the central bank says that interest rates in EMU countries could deepen further into negative territory before being counterproductive.
Morgan Stanley | Bank analysts raised the sector to Attractive a few weeks ago because our macro no longer expects depo-type cuts and this increases confidence that profit estimates have hit a minimum in 2H19. We estimate a flat growth of the NII (+ 0.6%) in 2020 and 2021. There is optionality in the charge for deposits (could add 3% to the NII of the Eurozone banks).
Market concerns persist, and there seems nothing in the short term that will change this. In fact, the latest ECB Financial Stability Report gave evidence of the nest of problems and risks in which we have found ourselves for some time, while recalling the downside balance of current risks, analysts at Intermoney point out.
Bankinter | The private sectors credit stock increases +3.4% in April (vs +3.2% before). A strong performance in company credit stands out (+3.9% vs 3.6% before) as well as credit for buying houses (+3.6% vs +3.5% before).
J.L.M. Campuzano (AEB) | The total assets of the Spanish financial system amounted to 4.7 trillion euros at the end of 2017, almost four times GDP. In 2012 it exceeded 5.2 trillion euros.
To advance towards banking union it is necessary to reduce systemic risk, and the quality not just the level of capital is ever more important. The most important risks associated with the banking sector remain the ratio of NPLs (non-performing loans) and the exposure to sovereign debt, according to analysts at Morgan Stanley.The European banks have made significant efforts to improve the quality of their assets.