"We plan to focus on the most profitable segments, businesses that generate commissions." These words are from Onur Genç, number two of BBVA, talking about the bank's strategy in Spain in a meeting with investors a few days ago. This sentence summarizes not only the plans of this entity, but of the rest of the large banks that, in the last year, have made similar statements. Low interest rates are leading these groups to focus on activities such as investment fund management, pension plans or insurance, which generate new income streams through commissions.
This already has an effect on the balance sheet of large entities. Specifically, one out of every three euros entered by the six largest banks in Spain (CaixaBank, Santander, BBVA, Sabadell, Unicaja and Bankinter) already comes from commissions, according to the details of the accounts between January and September. They are about 8,000 million euros of the 24,000 million entered by six large companies during that nine-month period.
Interest, the income that banks receive mainly from lending money, whether for mortgages or consumer loans, continues to be the main route of invoicing, although it has been stagnant or declining for years. By having interest rates falling, even in negative territory, practically the only way left to increase this income would be by signing more loans. In fact, in the aforementioned nine months of this year, the six banks billed some 14,000 million euros in this way, with a fall of 1.5% compared to the same period in 2020. Commissions, on the other hand, grew by almost 9 %, causing the total turnover to increase just over 2%.
The same phenomenon has occurred in Spanish banks so far this year: interest income has fallen significantly but those from commissions soar. CaixaBank is the only one in which the rise in fees does not compensate for the drop in interest income. The largest increase occurred at Bankinter, where billing for this item has grown by 23% until September. It is followed by Unicaja, with an increase of almost 20%. Or BBVA, where commissions grow 18% so far this year. In the rest of the banks the rise is more moderate, but around 5%. With this progress made in 2021, BBVA is the one with a greater weight of commissions in its income, reaching 35%. What is significant is that just a year ago, this figure was around 30%. Unicaja is, on the other hand, the one with the least weight, although with the significant growth of the last year they have gone from representing 22% of their income to 29%.
To continue with the example of BBVA, which is not unique but is a strategy shared to a greater or lesser extent by all banking groups, at the aforementioned meeting with investors held last week, it set out one of its strategic keys for Spain. The objective, said the head of the bank in the country, Peio Belausteguigoitia, is that in three years one out of every two BBVA clients will have contracted an investment fund or insurance with the bank. Precisely these businesses, the bank pointed out in its results between January and September, are responsible for the commission income rising 18% so far this year.
The example can be taken to other entities. CaixaBank is, since the absorption of Bankia, the largest bank in Spain. It adds up to almost a third of the commissions charged by the six largest groups in the country. Income from commissions from banking activity, which combines aspects such as deposits, cards and other transactions, fell 0.7% until September. In contrast, those that come from managing client assets (funds or pensions) rose 16% and those related to insurance, more than 6%.
Banco Santander does not break down the routes of income from commissions by country, but it serves as a reference that while commissions for services fell 0.4% in the year, while those that come from customer resource management soar more than 8 %. "The level of commission activity is very high," said José Antonio Álvarez, CEO of Banco Santander, when he presented the accounts. Or Bankinter, whose main source of commission income is already the management of customer funds, and which has soared 26% so far this year. "We have a very satisfactory growth", defended María Dolores Dancausa, CEO, in the presentation of the bank's third quarter results.
The pandemic has accelerated a phenomenon that is the increase in household deposits. At the end of August, the latest data from the Bank of Spain, banks kept almost 1.4 trillion euros in deposits from homes and companies. They are almost 100,000 million more than when the health crisis broke out. Monetary regulations in Europe penalize banks in part for these deposits, which is why they are no longer remunerated in most cases. In addition, they do not generate income for the bank, so they prefer to refer customers to businesses that do. This is where funds, pension plans and insurance come in precisely.
However, the commissions that most customers usually receive are those most linked to basic products, such as maintaining accounts, cards or certain operations such as the use of ATMs. In the last year and a half, banks have been modifying the conditions of their checking accounts, raising commissions for less connected clients, those who only use entities to have their account, direct debit payroll and some payments and the use of the card. In some cases, maintaining these types of accounts can cost up to 240 euros per year. To avoid them, two options are usually given: 100% digital accounts or contracting linked products. Again, funds, pension plans and insurance. Or credits like mortgages.
Banks have explained on different occasions that the objective of this strategy is not to increase the income from commissions of these accounts, but to "link more" to customers. It is the commissions generated by this connection with the aforementioned businesses that do center the banks' strategy. This happens with deposits, it also happens with mortgages. They continue to be the main banking activity, growing a lot this year after the pandemic, but it is not as profitable as in the past. The current price battle that the sector is experiencing to attract customers has a small print. To be able to access the offers with the lowest costs, it is necessary - again - to be more linked with the bank and to contract additional products. Again, funds, pension plans or insurance.