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Spain’s banking sector: Facts & Figures

Updated September 2018 – For earlier editions of Facts & Figures click here

Spain continues to benefit from a reduction in macroeconomic imbalances underpinned by a strong, relatively broad-based economic recovery. For the third year in a row, the Spanish economy grew by more than 3% in 2017 and above the euro area average.

This dynamism has been favoured by a structural change in the Spanish growth model; a shift with several dimensions and anchored in competitive gains. Spain has registered a current account surplus during the last five years, allowing for a more balanced growth pattern. It is also showing a strong capacity to create jobs. Employment continues to increase at a pace of around half a million jobs per year. The unemployment rate decreased to 17% in 2017 and 16% in 2018. Additionally, the functioning of the financial sector has substantially improved while the deleveraging process undertaken by the private sector, since the peak of 2010, accounts so far, for a reduction of nearly 60 percentage points of GDP. Also, the general government deficit has continued its reduction, reaching a 3.1% of GDP target in 2017.

These trends are expected to give support to the positive momentum of the Spanish economy in the future. In 2018, GDP growth forecast is 2.9% and inflation is under control, with the main challenges remaining in the field of public debt, the labour market, further tensions in Catalonia that could continue to paralyse the political reform agenda, and the withdrawal of ECB stimulus, faster than anticipated.

The Spanish banking sector was composed, as of January 2018, of twelve banking groups (14 groups last year), representing more than 90% of the industry. These groups include 59 private banks, two saving banks and 63 cooperative banks.

The very limited variation of the banking structure reflects the stability of the sector. It should be noted that the merger between the two remaining public banks, BMN and Bankia, materialised in January 2018, under the lead of the Spanish Fund for Orderly Bank Restructuring (FROB).

On the other hand, in June 2017, the Single Resolution Board agreed the resolution of Banco Popular. This resolution was the first operation of this nature carried out in the euro area under the Bank Recovery and Resolution Directive (BRRD). The resolution tool chosen was sale of the business, and it was successfully completed after its acquisition in a public auction by Banco Santander. As provided for in the regulation, the resolution of the entity had no negative impact on financial stability and did not require public funds.

In general terms, the trends observed in 2016 were maintained in 2017: low interest rates and household and SME credit slowdown continued. However, Spanish banks have gone deeper in the cleaning-up of balance sheets and in the construction of a strong CET1 on a fully loaded basis.

In terms of capital, the equity-to-assets ratio was in December 2017, and on a solo basis, 10.6%, reaching a new high for the second year in a row. The consolidated regulatory capital ratio reached 11.37% fully loaded CET1 (10.90% as December 2016). Regarding profitability, and according to EBA data, Spanish ROE continued to increase, from 5.10% in December 2016 to 7.05% in December 2017, and above the European average (6.08%), with an efficiency ratio that remained constant. As mentioned before, the NPL ratio further decreased to 4.53% in 2017 (5.70% in 2016).

As far as the Spanish balance sheets are concerned, the total volume of credit continued to experience a small reduction although fresh credit, namely for SMEs and households, increased from €250 billion in 2016 to €272 billion in 2017. In terms of deposits, a tiny drop was observed in 2017 to €1,113 billion.

Banks in Spain are early adopters in the digitalisation process of financial services. Regarding payments, they have been frontrunners for instant in person-to-person (P2P) mobile payments. After the launch of BIZUM, which allows customers to make instant P2P payments using the payee’s telephone number, the Spanish banking community was among the first to adopt SEPA Instant Credit Transfer by November 2017, which opens the instant experience of payments to business through any remote channel at their disposal. Additionally, considering their obligations under PSD2, Spanish banks work to propose the best solution for opening accounts to third-party providers for payments’ initiation and account information services. They look for a common, resilient and standard dedicated interface to provide secured access to customers’ accounts.

Spanish banks are fully committed in the fight against climate change and the 2030 agenda of the United Nations through the 17 Sustainable Development Goals. They are active players in green bonds, sustainable loans and green finance with the objective of channelling capital aligned with environmental considerations. This commitment is easily identified in the leadership of Spanish entities in numerous international initiatives aimed at promoting this field of global concern.

Contributor: Carmen Rizo crizo@aebanca.es

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