The Bank of Spain has warned this Thursday that uncertainty about the extent of the economic crisis remains “very high” and consider that financial entities will still have to make a “significant effort” in provisions this year to address the increase in delinquencies.
The supervisory body recognizes that in 2020 the banks have already made important provisions and will be able to consume them as defaults increase, but it is clear that more will be needed and the volume will depend on how much the delinquency increases. At the end of 2020, the delinquency of the Spanish banks stood at 4.51%, the lowest level since April 2009, so it would have to triple -which seems a lot- to reach the maximum levels of the previous crisis .
The profitability of the sector will again be impacted by the need to make provisions and this will be reflected in the ROE, the return on assets, although in the Bank of Spain they trust that there will not be a very strong impact on recurring profitability, which is linked to the business itself.
In this context, mergers could help cut costs, although the Bank of Spain insists that these types of decisions are made by entities and the supervisor is in charge of analyzing them, without showing any preference based on the size of the entities.
Far from an oligopoly
Despite the concentration process experienced in recent years, in the institution chaired by Pablo Hernández de Cos they assure that Spain is “far from an oligopoly” and just go outside to see the competition.
Regardless of the merger processes that may take place – the merger of CaixaBank and Bankia is currently approved, as well as that of Unicaja Banco and Liberbank -, the Bank of Spain predicts more branch closures and job cuts, at least in traditional positions, as new profiles will be required.
As financial products become more digital, offices lose prominence and this will mean fewer branches and fewer staff, they argue; Even so, the sector’s effort to avoid financial exclusion and the alternatives offered, among them, financial agents, agreements or mobile offices stand out.
Apart from these forecasts, Hernández de Cos considers that the package of direct aid for companies approved last week by the Government must be assigned quickly and homogeneously and must focus on viable companies but with solvency problems.
In a letter that serves as an introduction to the 2020 Banking Supervision Report published this Thursday, he adds that it is important that the volume of committed funds be evaluated “permanently” in light of the evolution of the pandemic. And in the case of non-viable companies, he believes it necessary that settlement processes are streamlined to avoid that resources are consumed in this process that could be more beneficial in other activities.
The Bank of Spain imposed sanctions on eight entities in 2020, despite the suspension of administrative deadlines between March 14 and June 1 due to the state of alarm decreed by the Government against the coronavirus. three new files and resumed one suspended for years against a box.
Transparency and protection of clients continues to be the area in which the most sanctions are concentrated, five of the twelve files, three against banks, one against a credit union and another against a financial credit institution. There were also files against a payment institution, against the shareholders of an electronic money institution, two against two appraisal companies and their charges and sanctions against companies not authorized by the Bank of Spain.
The supervision of consumer credit has played a relevant role during 2020 and the focus has been on the marketing of revolving or deferred payment cards, as well as financing for the purchase of cars, among others. As a consequence of its supervisory activity, the Bank of Spain sent 99 letters to the entities with 405 requirements and recommendations.
Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.