Profitability, Digitalization, Reputation

The intense transformation experienced by the Spanish banking sector can be summarized in three key points: greater capitalization (the average in the CECA sector at the end of 2015 is 12.86%); greater consolidation (the savings banks and banks created by them have tripled their average size since 2008); and a reduced installed capacity (with almost 40% fewer branches and over 36% fewer employees). These data highlight the significant preparation of the Spanish banking system for the challenges posed by European Banking Union (unlike the financial systems of some countries in our environment, which cannot at all attest to the effort of transformation and cleaning exhibited by ours).

The old adage of creating a single banking market is closer than ever to becoming a reality. The Monetary Union, the intense harmonizing process driven by the European Commission, the regulatory activity of the European supervisory authorities, and finally, the Banking Union have shaped a framework shared by all European financial entities which consequently face common problems and challenges. Among these challenges, the most notable can be summarized in three: profitability, digitalization, and reputation.

The return to more satisfactory levels of profitability is the main challenge for the European banking system. The current context of low interest rates, with no short-term prospects for change, combined with a slow economic recovery, does not constitute the most favorable environment for business. Therefore, in addition to the usual cost containment measures, it is essential to add alternative solutions. In this regard, an interesting redesign of the commercial offering is beginning to be appreciated by financial entities, benefiting new products and services that allow for a greater level of customer attachment. Ultimately, a suitable diversification of the offering, which allows for a comparable diversification of income, is essential to overcome this difficult stage regarding profitability. Banks are likely to recombine the balance between interest margins and fees to give more weight to the latter in their financial results.

Digital transformation is another of the great challenges. New technologies and big data present opportunities to be closer to customers and offer them a more personal, satisfactory, and profitable service. But above all, digitalization is the necessary response to the new habits and demands of customers: multi-channel relationships and maximum quality service requirements. The real impact that technological innovation will have on banking activities is yet to be seen. But one thing is certain: financial entities are called to combine traditional banking tools with digital ones. Only in this way can a competitive banking model be configured. In this combination of channels, both traditional and digital, branches will survive, but only to the extent that they operate as improved service centers, oriented towards high-quality advice for customers.

Finally, the financial sector faces the challenge of regaining its reputation and prestige as an industry. The entities associated with CECA have been demonstrating their contribution to economic recovery through a sustained reactivation of new credit granted to the real economy, particularly families and SMEs. This is also evidenced by the more than 700 million invested in 2015 in Social Initiative. Both contributions are valuable assets with undeniable social value, on which to base the certainty that the banking system is a key piece for economic development and the generation of well-being.