Spanish banks seek mergers as outlook darkens

Spanish banks seek mergers as outlook darkens
People walk past branches of Bankia and Caixabank in Madrid, Spain, September 18, 2020. (Reuters)
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Updated 23 November 2020

Spanish banks seek mergers as outlook darkens

Spanish banks seek mergers as outlook darkens
  • 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

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.


IMF chief sees ‘high degree of uncertainty’ in global outlook

IMF chief sees ‘high degree of uncertainty’ in global outlook
Updated 35 min 25 sec ago

IMF chief sees ‘high degree of uncertainty’ in global outlook

IMF chief sees ‘high degree of uncertainty’ in global outlook
  • IMF had rapidly increased concessional financing to emerging market and developing economies

WASHINGTON: The head of the International Monetary Fund on Monday said the global lender needed more resources to help heavily indebted countries, citing a highly uncertain global economic outlook and a growing divergence between rich and poor countries.
IMF Managing Director Kristalina Georgieva, who has long advocated a new allocation of the IMF’s own currency, Special Drawing Rights (SDRs), said doing so now would give more funds to use address both the health and economic crisis, and accelerate moves to a digital and green economy.
Under outgoing President Donald Trump, the United States, the IMF’s largest shareholder, has blocked such a new SDR allocation, a move akin to a central bank printing money, since it would provide more resources to richer countries since the allocation would be proportionate to their shareholding.
Swedish Finance Minister Magdalena Andersson, the new chair of the IMF’s steering committee speaking at an online news conference with Georgieva, said it was clear the need for liquidity remained great, and she would consult with member countries on options for expanding liquidity.
Andersson, the first European to head the International Monetary and Financial Committee in more than 12 years and the first women, started her three-year term in the role on Monday.
Georgieva said the IMF had rapidly increased concessional financing to emerging market and developing economies, including through donations by member countries of some $20 billion in existing SDRs. That would continue to play an important role, but further steps were needed, she said.
“It will continue to be so important, even more important, for us to be able to expand our capacity to support countries that have fallen behind,” Georgieva said.
She said a new SDR allocation had never been taken off the table by IMF members, she said, adding that some members continued to discuss it as a possible move. A possible sale of gold from the IMF’s reserves would have “some opportunity costs” for the IMF, but would be up to members, she said.
She said she expected the Group of 20 major economies to extend the current moratorium in official debt service payments by the poorest countries, now slated to end in June, but much would depend on the pace of vaccinations in coming months.