July 9, 2020

The Bank of Spain requests more sanitation and cost cuts from the banks to improve their earnings by 4.7 billion




The bank has been complaining for some time that the zero and negative interest rates applied by the European Central Bank (ECB) They are ballasting their profitability. Supervisors do not deny that this monetary policy pressures the business margins of financial institutions, but they argue that the benefits have been greater and insist that banks continue to make adjustments to improve their weak profitability figures, the main concern now of The banking authorities. In this sense, the Bank of Spain claims to the Spanish banks that continue to reduce your unproductive assets and operating costs, among other measures. With these adjustments, the national supervisor calculates, the operating results of the sector would grow by 4.7 billion of euros and its level of profitability at 3.5 percentage points.

The average profitability of Spanish banks at the end of last June touched 8%, above the average of 7% of the European financial sector as a whole, according to the latest data collected by the European Banking Authority (EBA). This assumes that the entities do not cover the cost of capital, which is between 8% and 10%.

“Entities must take advantage of the improvement levers that are available to them in the current macro-financial environment, such as increasing the granting of solvent credit, diversifying its sources of resource generation, reducing unproductive assets, increasing its efficiency and improving its reputation ”, said on Tuesday the governor of the Bank of Spain, Pablo Hernandez de Cos, during the opening of the XV Meeting of the Banking Sector organized by IESE and EY.

The national supervisor acknowledges that the Spanish financial sector has made an enormous sanitation effort, but recalls that the industry delinquency rate it is still 5.3% of the credit granted in Spain and the level of foreclosed assets is 40,000 million euros, above the pre-crisis levels. In this sense, Hernández de Cos has explained that with the necessary sanitation to the level of provisions of the sector fell to the same level as in 2005, when it marked its historical low, the sector accounts would improve by 1.7 billion euros and its profitability ratio of the sector by 1.3 percentage points. «The entities must therefore persevere in this strategy», has reiterated.

Similarly, the Bank of Spain highlights how the country's banks have cut their expenses by reducing your office network by 40% and your templates by 30%. However, the total revenues of the sector have fallen faster than the operating costs and, therefore, the efficiency ratio of Spanish entities, despite being better than the European average, is now 56.2%, nine points worse than in 2014.

«In terms of assets, operating expenses were in 2018 at records similar to those before the crisis. However, in a context in which the weight of credit within the assets is significantly less than then, these expenses should also be lower, since the costs associated with the management of non-credit assets are lower, ”says the governor , who estimates that if the efficiency ratio improved to the level of the year 2009, when I was 43.2%, the attributed result of the sector would improve in 3,000 million and the profitability in 2.2 points.

With these calculations, the Bank of Spain indicates to financial institutions that they have ways of improve your profitability despite the current monetary and regulatory environment. Hernández de Cos, in line with the official ECB speech, has pointed out that low interest rates, despite their effect on business margins, have allowed banks improve your delinquency figures as well as encourage credit activity, among other measures. On the other hand, the governor has indicated that there is no evidence that, as the financial sector denounces, the regulatory burden is ballasting its profitability levels.

. (tagsToTranslate) bank (t) Spain (t) sanitation (t) cuts

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