BARCELONA: A wave of mergers is sweeping across the Spanish banking sector as lenders face up to a pandemic-induced recession, ultralow interest rates and growing competition from financial technology startups.
CaixaBank, Spain’s third-largest bank, and Bankia, its fourth-largest, approved a merger in September which will create the nation’s biggest domestic lender with around €664 billion ($788 billion) in assets in the country.
And BBVA, the country’s second-largest bank, announced on Monday it was in talks with Banco Sabadell, Spain’s fifth-largest bank, over a possible tie-up.
If successful, it would create Spain’s second-largest domestic bank, far ahead of Santander, which would still remain the country’s biggest bank by total assets due to its huge international presence. Mid-sized lenders Liberbank and Unicaja, meanwhile, confirmed renewed merger talks in October.
The trend is not new in Spain, which saw dozens of lenders disappear in a wave of tie-ups that followed the 2008 financial crisis, when Madrid received a EU bailout of €41.3 billion for its ailing banking sector.
These new operations are “defensive to avoid problems in the future,” Xavier Vives, of the IESE Business School in Barcelona, told AFP.
But unlike during the previous crisis, when lenders faced a solvency problem, this time around the issue is a lack of profitability, he added.
“Interest rates are low, the yield curve is very flat, and with the pandemic, revisions of interest rates have been postponed. Under these circumstances, the banking business is not very profitable,” said Vives.
At the same time, banks are facing fierce competition from financial technology startups, or the so-called “fintech” sector, which operate online and have much lower operating costs than traditional banks.
“Certainly, with negative interest rates it is very difficult to earn money,” said Ricardo Zion, a bank expert with the EAE Business School.
“But the big problem for banks is that it is impossible to be profitable with a model based on having branches, especially to compete with the ‘fintech’ and new operators.”
At a time when banks are boosting their provisions to face an expected rise on bad loans due to the economic fallout of the pandemic, these merger operations “strengthen their solvency,” Zion said.
“Unlike during the last crisis, when banks were a problem, now they must be part of the solution,” he added.