Spain’s banks look to make lockdown closures permanent

Banc Sabadell is set to close 140 branches this year alone. (AFP)
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Updated 04 July 2020

Spain’s banks look to make lockdown closures permanent

  • Pandemic sees more customers go digital, negating need for costly branches

MADRID: As Spain reopens after the coronavirus disease (COVID-19) crisis, its banking industry is seizing the opportunity to shrink its swollen branch network which has long been a drag on profitability, with four banks planning at least 800 branch closures this year.

Despite significant cuts since the 2008 financial crisis and more than 2,000 last year, Spain’s 24,000 bank branches still have one of the highest ratios to people in the world, according to the International Monetary Fund, trailing just San Marino, Mongolia and Luxembourg.
Union opposition to closures and a population more reliant on using in-branch services than others in Europe have slowed Spanish banks’ progress in closing branches despite their running costs being a major drag on profitability.
But after shutting down huge parts of their networks during the lockdown, lenders are examining whether changes to consumer behavior mean more can stay shut.
“Many of the even older clients will have discovered that you can do things quite quickly and cheaply online. I am not sure they would go back to doing things the same way as before,” said Nick Hill, managing director at rating agency Moody’s.
Bankia and Sabadell both plan not to reopen some of the branches they closed during the lockdown imposed in Spain to curb the pandemic, according to sources.
The pair are closing 235 and 140 branches this year respectively, while Unicaja is reducing its network by 100 over three years.
Oscar Arce, the Bank of Spain’s director general for economics, told a news briefing this week that it would be up to each bank to decide on branch closures but said “there were elements in every bank’s network that were not profitable.”
In a sector grappling with higher loan-loss provisions to cope with the pandemic, financial consultant Kearney believes Spanish banks will need to reduce costs by between €2 billion to €3 billion in the medium-term to improve profitability — and branch closures are likely to be central to that.

HIGHLIGHTS

● COVID-19 accelerates bank branch cuts.

● Liberbank and Unicaja bet on outsourcing.

● At least 800 closures planned so far in 2020.

Around 35 percent of bank branches across Europe have closed in the last 10 years according to Kearney, as lenders slashed costs and customers switched to digital platforms.
But in Spain around 65 percent of product and service contracts are still agreed in branches, compared to less than 50 percent in Europe as a whole.
That’s left Spanish lenders wary about cutting off access to branch services, particularly in rural areas.
Instead some are set to accelerate a model they were trying before the crisis — using a McDonald’s style franchise to outsource branch services.
Lenders like Unicaja and Liberbank have started using self-employed agents to run branches and sell the bank’s products.
The ‘financial agent’ is responsible for rent, electricity and water supply bills while the bank provides the technology and the financial products, Jonathan Joaquin de Velasco, the head of strategy and risk policy at Liberbank, told Reuters.
“We get rid of all the fixed costs, we turn them into variable costs, and this obviously has a very relevant impact on efficiency over time,” Joaquin de Velasco said.
When Liberbank first launched this model with one ‘pilot’ ‘financial agency’ in September of 2016, it had 992 traditional branches. As of the end of the second quarter, the lender will have 560 traditional branches and 200 financial agencies.
Though Velasco did not give a breakdown on the cost-savings arising from this model, he said its implementation would on average improve the efficiency ratio by almost three times that of an equivalent branch in size.
Banks can also use the model to incentivize the sale of higher margin products for wealthier customers, making the remaining outposts more profitable.
“Downsizing the network is a long established trend, but more than just downsizing it is the transformation of branches, that will continue,” said Caixabank’s CEO Gonzalo Gortazar during a business school event on June 18.


Libya’s NOC says production to rise as it seeks to revive oil industry

Updated 22 September 2020

Libya’s NOC says production to rise as it seeks to revive oil industry

  • Libya produced around 1.2 million bpd – over 1 percent of global production – before the blockade
  • Libya’s return to the oil market is sustainable

LONDON: Libya’s National Oil Company said it expected oil production to rise to 260,000 barrels per day (bpd) next week, as the OPEC member looks to revive its oil industry, crippled by a blockade since January.
Oil prices fell around 5 percent on Monday, partly due to the potential return of Libyan barrels to a market that’s already grappling with the prospect of collapsing demand from rising coronavirus cases.
Libya produced around 1.2 million bpd — over 1 percent of global production — before the blockade, which slashed the OPEC member’s output to around 100,000 bpd.
NOC, in a statement late on Monday, said it is preparing to resume exports from “secure ports” with oil tankers expected to begin arriving from Wednesday to load crude in storage over the next 72 hours.
As an initial step, exports are set to resume from the Marsa El Hariga and Brega oil terminals, it said.
The Marlin Shikoku tanker is making its way to Hariga where it is expected to load a cargo for trader Unipec, according to shipping data and traders.
Eastern Libyan commander Khalifa Haftar said last week his forces would lift their eight-month blockade of oil exports.
NOC insists it will only resume oil operations at facilities devoid of military presence.
Nearly a decade after rebel fighters backed by NATO air strikes overthrew dictator Muammar Qaddafi, Libya remains in chaos, with no central government.
The unrest has battered its oil industry, slashing production capacity down from 1.6 million bpd.
Goldman Sachs said Libya’s return should not derail the oil market’s recovery, with an upside risk to production likely to be offset by higher compliance with production cuts from other OPEC members.
“We see both logistical and political risks to a fast and sustainable increase in production,” the bank said. It expects a 400,000 bpd increase in Libyan production by December.
The Organization of the Petroleum Exporting Countries and allies led by Russia, are closely watching the Libya situation, waiting to see if this time Libya’s return to the oil market is sustainable, sources told Reuters.