CECA Sector Banks Pass ECB and EBA Stress Tests
- CECA acknowledges the robustness and rigor of the transparency exercise, marking a significant milestone in the construction of the European Banking Union.
- This outcome highlights the capitalization, efficiency, and improvement in asset quality and corporate governance efforts of the Sector entities in recent years.
All banking groups established by the Cajas currently have sufficient ordinary tier 1 capital (CET1) ratios as per the stress tests conducted by the European Central Bank and the European Banking Authority, the results of which were published this morning.
This exercise validates the restructuring process of the Spanish financial system and, in particular, the advancements made by CECA sector entities since late 2008. These advancements have materialized in a reform of their legal framework; higher capitalization levels; significant consolidation and reduction of installed capacity; improved operational efficiency; and enhanced asset quality. This profound transformation has allowed for successful completion of the stress tests, thus facing the challenges of the European Banking Union with confidence.
- Capital
- The capitalization efforts made by Sector entities in recent years have strengthened their solvency, as evidenced by the stress tests.
- Additionally, in 2014, Sector entities raised capital amounting to 3.551 billion euros.
- Consolidation and Capacity Reduction:
- From 45 Cajas that comprised the Sector at the end of 2008, the number has been reduced to 11 entity groups as of June 2014.
- The average size of Sector entities has increased from 26 billion to 93 billion during this period.
- The Sector has reduced the number of offices by 35% and the number of employees by 31% from late 2008 to June 2014.
- Efficiency Gains:
- The reduction in capacity is reflected in a significant decrease in operating expenses, which dropped from 1.27% of average total assets (ATMs) at the end of 2008 to 0.96% of ATMs in June 2014.
- As a result of this decline, the efficiency ratio improved by 5 points, moving from 51% at the end of 2008 to 46% in June 2014.
- Improvement in Asset Quality:
- From 2008 to June 2014, Sector entities made write-offs and provisions totaling 136 billion euros (13% of GDP). The entities intensified their provisions against profits due to the application of RDL 2/2012 and Law 8/2012, in addition to write-offs associated with their own integration processes and, to a lesser extent, the use of generic provisions.
- The Sector’s exposure to the real estate sector, including financing and allocations from the promotion and construction sector, has been reduced by almost 65% from late 2011 to June 2014. Alongside the reduction in exposure to the real estate sector, entities improved their coverage ratios for assets related to promotion and construction, with the net exposure to this sector (that is, after provisions) decreasing from representing 18% of credit at the end of 2011 to 7% by June 2014.
Prepared for ECB Supervision, the First Pillar of the Banking Union
In this exercise, 130 European banks have undergone stress tests and the quality of their assets (Asset Quality Review – AQR) has been assessed. The outcome, resulting from a strict and rigorous methodology, transparently demonstrates the ability of European banks to adapt to future crisis situations.
One of the main conclusions from the positive results of our country’s banking sector regarding asset quality analysis is that the Spanish system for portfolio classification, collateral calculation, and provisions significantly meets the most stringent standards.
