José María Méndez: “Reversing the Deterioration of Solvency Caused by the Crisis”

The health crisis has had a significant impact on the economic and financial situation of Spanish companies, although its effect has been mitigated by the measures adopted, among which the monetary stimuli from the ECB and the public guarantee programs from ICO stand out.

Despite the recent improvement in economic activity, the sharp drop in income and increased indebtedness have heightened the financial vulnerability of the business sector, particularly affecting smaller companies and the sectors most severely impacted by mobility restrictions during the pandemic. According to data from the Bank of Spain, although activity and employment have recovered significantly, the gross added value of all companies in the Balance Central of the Bank of Spain was still as of September 2021 approximately 13.8% below the levels of the same period in 2019.

In the short term, it remains a priority to focus public aid on reversing the deterioration of solvency caused by the crisis and to concentrate support on those viable companies that exhibit greater vulnerability.

However, in the medium and long term, measures must be aimed at improving the productivity of our productive fabric. There are various reasons that explain the lower productivity of Spanish companies over the last decade, but undoubtedly, one differential factor that underlies the lower potential growth of our economy compared to the eurozone average is the reduced investment effort in R&D&I, along with its lower endowment of capital or infrastructure. Thus, using data from the Bank of Spain, our country ranks below the European average in variables such as the stock of technological capital in relation to GDP (66.1% lower) and productive capital per employee (29.9% lower).

If anything positive can be drawn from the health crisis, it is that it has accelerated the digitalization of the economy, which, supported by the contributions of the NextGen EU program, represents a great opportunity to transform the Spanish productive fabric and boost its internationalization (particularly for SMEs) based on new digital channels.

This program faces, however, a crucial challenge, which is the need to efficiently allocate a large amount of resources (70 billion euros in transfers, which can be supplemented by additional funds if the financing tranche is utilized) within a limited timeframe. Therefore, it is essential to design a process for selecting and allocating projects that can channel European funds toward companies and projects with the greatest pulling capacity.

In this effort, the role of banking is fundamental, due to its high degree of capillarity, supported by a network of over 23,000 offices (half of the CECA Sector), its expert and close knowledge of both large companies and SMEs across different sectors of activity, and an advanced digital infrastructure at the service of clients.

Financially, its capacity to anticipate funds and provide additional financing to complement aid, generating a multiplier effect that maximizes the plan’s impact on the national economy, stands out. The recent collaboration with ICO for channeling guarantee lines (which by the end of 2021 exceeded 135 billion euros in financing provided by banks) is a clear example in this regard.

The collaboration between the public sector and the private sector is undoubtedly one of the keys to ensuring the success of the national plan. We must not forget that public administrations face the coordination challenges posed by the decentralization inherent in the autonomous state. In this sense, banking networks can contribute to ensuring a homogeneous treatment throughout the territory, favoring equal opportunities for those affected by the crisis, regardless of their geographical location.