Big bank profit figures have once again placed corporations at the center of social and political debate. Sumar, the coalition led by Minister Yolanda Díaz, heir to Podemos and government partner of Pedro Sánchez’s PSOE. He’s betting on making permanent what he describes as an “extraordinary revenue” tax that would enable both groups to operateIn principle, it is two years. And according to experts, the intention of PSOE, which has already congratulated itself on the implementation of the tax, is to support this initiative.
The bank paid 1,119 million euros with this tax, collected until 2022; Charged until 2023According to the Bank of Spain, this will mean a payment of 1 billion 274 million euros to the sector. The debate arises not only from the cost itself, which is the main argument, but also from its effects and whether it is a transferable expense: “It’s a cost of lending – that’s what they say in the bank – so it needs to be included”.
BBVA CEO Onur Genç criticized this at the presentation of the bank’s results: “This is not good for Spain because it makes it difficult to attract investment due to regulatory instability.” He also noted that it had reduced its lending capacity. QSantander CEO Héctor Grisi called this “discriminatory” and added that it “stigmatized” the industry. “This is an additional tax,” other banking sources say. “We already pay an average of 30 percent in companies,” they emphasize. For example, Santander paid a total of 9 billion 734 million euros in direct taxes in 2022, 2 billion 892 million of which were in Spain.
The key to profitability
The question is: Are the profits made by banks this year really extraordinary? “The important thing is that the rate increases should be very rapid and we should not forget where we came from.” [digestión de la crisis inmobiliaria, política de tipos cero, covid…]”, they highlight one of the main entities that openly refuses to impose like everyone else. In another they emphasize: “What is happening has nothing to do with extraordinary benefits, but everything to do with the normalization of the situation.” “What was extraordinary was that rates were at zero percent,” says one financial expert. “The increases are very noticeable if you compare them with last year, but the reality is that profitability is below 2010 levels.” .
A significant part of the debate is precisely about profitability. Bank of Spain, in its Financial Stability Report, He emphasizes that return on assets (ROA) reached 0.8% in June, compared to 0.6% in the previous year, while return on equity (ROE) was 12.1% in June, compared to 10% 12 months ago.. What do these levels tell us? Despite the recovery, the sector is far from the levels of around 15% it showed during the housing bubble years, although it is clear that these levels are distorted by accounting that does not respond to the true value of assets, hiding the huge losses that eventually resulted in the implosion. “In any case – says a financial expert – it is not bad that people are now talking about excessive profits; not so long ago in Europe they were very worried about the low profitability of Spanish banks.”
And if this aspect improves, the same cannot yet be said about solvency. According to the report of the Bank of Spain, The ordinary share capital 1st capital ratio (CET1, i.e. core capital of banks) increased to 13.1% in the first half. The problem is that the indicator is below what is observed in the “banking systems of the rest of the largest European economies.” [es decir, Alemania, Francia, Italia y los Países Bajos]”.
This is another aspect of the profitability debate, although it does not have the same meaning. “It is very important that we are profitable because the credit flow depends on it.”, they explain in a large bank. And the truth is that there are many sources starting to warn that this exceptional profit situation is coming to an end. “The first thing to keep in mind is that the European Central Bank will no longer raise interest rates,” explains one economist. As a matter of fact, the US Federal Reserve and the European Central Bank, the real guides of monetary policy, curbed the rapid increase in interest rates, although inflationary tensions could not be fully taken under control. This means that the sector’s main source of profit has dried up.
Bank of Spain stressed that interest margin “may show worse behavior in the coming quarters”. The supervisory authority explains that “the contribution of the price effect may decrease as the interest rate increase continues to be reflected in bank deposits.” “There are two quarters left in this increasing margin dynamic,” one expert emphasizes.
But also, Supervisor warns Spain’s credit slump could intensifyand “worse performance globally” due to economic slowdown. Regarding credit, the Financial Stability Report notes that the volume of bank loans to the private sector based in Spain “continued to decline” in the first half, specifically 2.6%.
However, sources consulted point to another additional problem; This problem is planned to set a 0% rate for the payment of minimum reserves held by institutions. This will lead to additional pressure on the interest margin from the fourth quarter and could fall by “about 560 million per year”, according to the supervisor’s calculations..
Late payment is no problem
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However, although we do not see the real danger in the short term, at least for now, late payment is one of the factors that the sector fears the most. None of the experts consulted on this issue see any real risk of corporate defaults in the short or medium term, as has occurred in the past. Actually, The Bank of Spain underlines that the sector’s bad debt rate “continued its decline” in the first half of the year and stood at 3.4%; This figure indicates a moderate need for collateral and provisions..
“The market sees no danger in coverage levels,” sources from one organization said. In fact, according to official data Total provisions (including pensions) at the end of the first period exceeded 22,000 millionthat is, 7.6% less than in the same period in 2022.