More loan, but more selective

“In some communities, some entity, as a result of mergers, accounts for more than 60% of the business”

Spanish banking, with more capital and money from the ECB, will lend to companies with magnifying glass and filter

Starting in November, banking will experience a revolution in Europe : all its regulations, new capital requirements and permits to carry out corporate operations will come from the European Central Bank (ECB) and leaving the Bank of Spain in a secondary role.

For that moment to come, the organism that Mario Draghi directs is carrying out an exhaustive evaluation of the 120 largest banks, of which 15 are Spanish, to determine their resistance. Spanish banks have already experienced their own stress tests a couple of years ago. Then they were forced to move tab. The most healthy entities had to capitalize and provision the delinquent loans, basically from the real estate sector. Conversely, the savings exits entered into a spiral of mergers that, in the medium term, led to the disappearance of many of them. Some became banks, but most were absorbed. The restructuring of the sector has contributed to the banking board having gone from 46 entities to 15 in the last five years.

The five large banks that operate in the Spanish market have gone from having a market share of 43.3% in 2009 to cover 56.2% in 2013. But there is more. The foreign bank, except the German Deutsche Bank and the nationalized Espírito Santo (and we will have to see how it finishes its sanitation), has left terrified of Spain by the demands of capital, the lack of profitability and the strong competition of the local players. The last to leave was Barclays, which has sold its activity to CaixaBank.

According to the Minister of Economy, Luis de Guindos, there are two pieces left to obtain the final photo of the consolidation: the divestment of nationalized banks (especially in Bankia, but also in Banco Mare Nostrum) and the restructuring of loan cooperatives. It is also about to quantify the final bill of the bank rescue for taxpayers. The European Union was asked for 100,000 million and only 4,000 million have been recovered. Both the future of Sareb and the asset protection schemes (EPAS) that were granted in the first phase of the restructuring to Banco Sabadell with CAM, to BBK (now integrated in Kutxa) by CajaSur, to CaixaBank by the Bank of Valencia and BBVA by Unnim complicate the final balance. It will depend, in any case, on the deterioration of the entities absorbed.

Be that as it may, there are new times for banking. Even the sudden death, this week, of the most powerful of Spanish bankers, Emilio Botín, anticipates winds of change. With the balance sheets in better shape than a year ago and awaiting the results of the stress tests, the bank is torn between granting loan or continuing to buy public debt, a financial operation that has been profitable in recent times.

The lesson learned from the crisis is that financial institutions will no longer grant mortgages that lend up to 120% of the price of the home to include the car or furniture in the operation. In the case of companies, the risk departments review the operations with a magnifying glass and finance exporting companies or with proven growth projections. SMEs are those that continue to show greater difficulties in accessing loan in conditions.

For the ex-Dean of Esade, Robert Tornabell, “in the years of the brick boom, the bank opened one office after another in each real estate development to attract customers.Since 2009, few mortgage loans are granted. In these, the majority of transactions are carried out and the office will become a support for specific consultations, in the style of what banking in the United States does, with few branches. ”

In the last three years, the Spanish financial system has reduced the total number of employees by 17.45% to 217,421; while the number of operating branches in 2013 was 33,782, 22% less than in 2010, according to data from the Bank of Spain.

For professor Joaquín Maudos of the University of Valencia, “although most of the installed capacity adjustment has already taken place, we will still see office closures and job cuts in the coming years”. In his opinion, “so far the adjustment has been carried out by the rescued banks to which the MOU imposed an adjustment of its capacity by closing offices outside its area of ​​origin, but there are other entities that present an excess of network, which they must cut to win efficiency in a context of deleveraging of the Spanish economy and reduction of margins “.

However, in his view, “Spain still has a banking concentration below the European average.” That said, I think it is necessary to monitor concentration in some regions where, as a result of mergers, an entity accounts for more than 60% of the business and that can be detrimental to the competition. ”

For María José Menéndez, managing partner of the business law department of Ashurst, “banking concentration will continue and network restructuring possibly too”. This expert believes that “online and telephone banking continues to gain weight and entities seek greater efficiency: attract more resources and customers with fewer offices.” For Jaime Velázquez, managing partner of Clifford Chance in Spain, “banking concentration will create stronger and really competitive entities, rather than provoke the emergence of oligopolies, competition in the market will grow between healthy entities that represent a valid alternative in the international financial system “.

As for foreign banks, according to Maudos, “he made the mistake of thinking that he could compete in Spain with his original business model, and that has led to his absorption by Spanish banks, or he has left. now the office, and the dense network that existed was a barrier to entry for foreign banks. ” “I doubt,” he continues, “that I will return again in a context of deleveraging the economy and low growth rates.”

María José Menéndez said: “The banking sector in Spain is very competitive and perhaps explains that foreign entities with some retail business have been reduced to the minimum expression”. “When you work as a client with foreign banks -says- one usually has the impression that they are less agile and have a less efficient operation than Spanish banks, which perhaps explains their relative lack of success in the Spanish market.”

Regarding future purchases that the banking sector could play a leading role in Europe, according to Velázquez, “after the reorganization carried out, the bank is perfectly prepared to undertake transnational operations in those jurisdictions that offer opportunities”. In short, it’s time to digest the latest purchases in Spain to move the record in Europe.