What Banking Has Learned After a Year of Pandemic

After a particularly difficult year of pandemic during which Spain may have lost 11% of its GDP, while already glimpsing the expected change of trend, it is pertinent, from CECA’s perspective, to make the following recap of events for reflection. Citizens have rated the response of the banking sector very positively. To date, there is no doubt about the crucial role that banking has played. In some way, every resident in Spain, or their close ones, has directly benefited from the measures implemented by the sector to provide financial support to families, SMEs, and self-employed individuals. Thus, the evaluation made by citizens regarding the banking actions during the pandemic is highly positive, receiving a score of 8 out of 10, according to the demographic survey conducted by GAD3 for the sector.

The banking sector has acted as a dam against the crisis. How much would our economy have fallen without the banking sector? In other words, what would have happened if banking had not been here to guarantee access to financial services, the payment system, and emergency funding flow? The answer is impossible to obtain, but it is easy to intuit that the collapse would have been much steeper. Even leaving it in the realm of conjecture, the reflection that follows may help frame the exercise.

What would have happened if banking had not been here to guarantee access to financial services, the payment system, and emergency funding flow?

The emergency funding from banks for SMEs and families has been, in just one year, 21.4% more than the total European funds that will come to Spain in the next six years. The response from institutions has been unprecedented, providing families and businesses with 115.8 billion euros in financing with ICO guarantees and granting 1,380,000 mortgage and consumer loan moratoriums amounting to 54.5 billion euros.

These allocations alone represent 170.3 billion in financing, which is 30.3 billion more than the 140 billion in European funds allocated to our country. This difference is even greater if we include the complementary financing provided by banks without public guarantees.

The pandemic has highlighted, more than ever, the importance of the Social Work carried out by CECA’s foundations. The social impact of the crisis has been extremely unequal, significantly increasing the number of people living in poverty or at risk of social exclusion.

With an investment of 772 million euros, the Social Work has played an essential role as a unifying element of our society, reaching 24 million people and mitigating the impact of the pandemic among the most vulnerable groups.

The Social Work has played an essential role as a unifying element of our society.

The banking sector is poised to have a key role in the country’s reconstruction through the channeling of European funds. Whether Spain can emerge soon from the crisis and grow, in the coming years, not only more but also better, will depend on the administration’s ability to manage a volume of funds that represents 11% of GDP. It is critical that these funds are invested correctly, that is, in viable and truly transformative projects, that they are allocated with the greatest granularity possible, and that they generate the greatest multiplier effect.

In all these aspects, banks can contribute. On one hand, they have the expert and close knowledge of businesses and the different sectors in which they operate. On the other hand, they have experience in the viability analysis of investment projects. Moreover, they possess the necessary reach to effectively deliver funds where they are needed. Lastly, bank financing, as a complement to public funding, will be fundamental to amplify the impact of the funds.

The public and private sectors are called to understand each other to set a course, from consensus and cooperation, to recovery. The starting position of banks in this crisis, with high solvency and ample liquidity, has made it possible for institutions to focus on their credit activities.

Financing will also be key in recovery, and banks will apply, where possible, innovative schemes to underpin the solvency of our companies. However, institutions must always adhere to their scope of action, providing necessary financing and ensuring strict risk management. It does not seem advisable to demand that banking go beyond its limits, neither by assuming greater risks nor by renouncing the nature of its activity. In fact, if the pandemic has revealed anything, it is that where banking cannot reach with its credit activity, public support measures, including direct aid, are as necessary as they are complementary.