The Spanish Financial System, the Most Efficient in Europe

The European Banking Authority publishes the results of its transparency exercise regarding European banking for 2016. Its objective is to conduct a check on the health of the participating entities and provide the market with information about their financial situation. In last year’s exercise, Spanish entities achieved results comparable to those of other European banks, despite the existence of factors that undervalue their capital ratios, such as having a higher proportion of risk-weighted assets –which make up the denominator of the solvency ratio– due to methodological issues and a lack of harmonization at the EU level.

However, this does not imply that risks have disappeared, since the low interest rate environment, in which we have been immersed for several years, exerts strong pressure on the margins of European financial entities. In light of this scenario, Spanish entities have adopted a proactive attitude, making efforts far superior to those of other countries in our environment, supported by a significant reduction in installed capacity and the adoption of strict cost control measures. We could say that the Spanish financial system is doing its homework, while other supposedly diligent students are being lazy and resisting undertaking the necessary measures to cope with the new environment. Thus, Spanish entities have reduced the number of offices by more than 40% since 2008 and the number of employees by almost 37%, which contrasts with European figures that often do not reach double digits (as seen in France or Germany). This significant effort to rationalize the network is reflected in average efficiency ratios that place our financial system at the forefront of the major economies of Europe, with a ratio of 50.7% at the close of the past 2015 exercise, compared to 73.1% in Germany, 68.1% in France, or 64.5% in Italy. Let us remember that this ratio reflects, as a percentage, the expenses incurred to obtain 100 euros of income, and therefore, the lower it is, the more efficient a financial entity is.

A significant aspect is that there is no clear relationship between efficiency and size, such that various mid-sized entities, including several associated with CECA, are among those with the highest levels of efficiency. At a time when different authorities advocate for the undertaking of new integration processes, this fact highlights that such a strategy may be suitable for certain entities, but it is not necessarily the only formula for success, as smaller entities can coexist with the large banking groups thanks to their specialization –whether geographical or by product– and this is something positive, as it contributes to diversity and strengthens the model.

In short, our financial system has a solvent, efficient banking sector that is prepared to face future challenges, framed within the new scenario outlined by banking union, which adds a new European dimension to our institutional and regulatory framework and represents a fundamental milestone in the construction of a true single market in the financial realm.