The quicksand in which the Spanish banks move may last longer than the managers of the sector had anticipated.

Added to the consequences of the current economic crisis, such as low demand for credit and the foreseeable increase in non-performing loans, is a scenario of negative interest rates that could be extended until 2031.

Financial markets expect the Euribor to remain in the red for at least another decade.

This indicator, to which most of the mortgages in Spain are referenced, currently stands at -0.47%, weighed down by the indefinite extension of the expansionary monetary policies of the European Central Bank (ECB).

The fall and prolongation of the negative rate scenario is a serious blow to the income statement of the entities, which obtain a mollar part of their profit through their own financial intermediation.

The CEO of CaixaBank,

Gonzalo Gortázar,

warned yesterday during his participation in a financial forum organized by Expansión and KPMG that this circumstance was the true trigger for the recent merger that the entity has undertaken with Bankia.

In 2016, when the Euribor entered negative territory for the first time, no bank manager expected that this situation could last for three decades.

What appeared to be a temporary obstacle to bank margins appears to have become structural.

"We are making the merger with great conviction to anticipate a more uncertain environment and have a stronger and more prepared entity," added Bankia CEO

José Sevilla

at the same meeting

.

The vice president of the European Central Bank (ECB),

Luis de Guindos,

warned that bank profitability is one of the three great risks that hang over the economy of the euro zone today.

The return on capital of the entities has gone in just six months from 5% -which was already low- to 2%, causing a sharp drop in the value of their shares and making it difficult to access the capital market.

The situation is particularly worrying in Spain and Italy, the two countries where bank interest income has fallen the most.

"Institutions have had to face low profitability, a direct consequence of a long period of low interest rates, and this situation is likely to continue as long as the economy does not recover," added KPMG Spain president

Hilario Albarracín.

The recipe that the regulator proposes to financial groups to combat this situation of low profitability is to reduce their costs.

And if they cannot do it alone, the option may be to merge with another entity and cut all duplications.

In short: do the same with fewer staff, fewer offices and spending much less, as the former Spanish minister tried to remember yesterday.

"The need to cut costs is even more necessary than before the pandemic. Consolidation can help to achieve this, but it is an instrument and not an end in itself."

The CaixaBank and Bankia teams are currently working on this phase, the toughest of the negotiation.

Each bank has assigned 2% of its staff to work on integration, especially teams with a clear legal and technological profile.

The objective is to seal the agreement in the first quarter of 2021 and for the new bank to be fully operational by the end of the year.

Meanwhile, the rest of the entities continue to look askance at each other and try to convince investors that they can face alone the challenges posed by the health pandemic.

BBVA ensures that its focus continues to be focused on serving its customers but that, if necessary, it would study operations that create value, Santander discards this because it says that its 20% market share in Spain is significant after integrating Popular and that those who should Small groups are most concerned, and Sabadell - smaller in size - boasts of leading margins due to its muscle in corporate banking.

What everyone agrees on is asking the Government for caution when withdrawing public stimuli that are anesthetizing the impact of the brutal economic decline that the country has experienced.

Banks know through direct dealings with their clients that there is a very high risk of credit defaults and bad debts occurring in the coming months, which would raise the default peak to its highest level in 2021.

For this reason, the sector claims that the liquidity measures to alleviate the financial asphyxia of the companies launched last spring be transformed into capitalization measures that prevent their bankruptcy.

His message is endorsed by the ECB.

"It is more necessary than ever for the economic situation to be predictable. It is essential to prevent the hasty withdrawal of stimuli from causing a sharp fall in the economy due to the precipice or cliff effect," concluded De Guindos.

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  • Spain

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