18 February 2015 – Expansión
«We will have to work up a sweat»: Warned the Chairman of the Banking Association, José María Roldán, at the end of last year, when he predicted that the fierce competition between financial institutions to supply credit to solvent clients in Spain would continue well into 2015.
The economic recovery, the lower cost of financing and the ever declining profitability of fixed income securities are spurring a trade war between the banks, which first took each other on in a battle to provide loans to SMEs and then moved onto mortgages.
In the race to expand their customer bases and secure customer loyalty, whilst at the same time protecting their market shares, banks have reduced the cost of credit in the last year, although the size of the reductions vary a lot between entities, according to information compiled from their respective results presentations.
Popular, BBVA and Sabadell have lowered their lending rates the most in the last year. The entity led by Ángel Ron (Popular) leads the ranking in terms of commercial aggressiveness, with a decrease of 34 basis points, which placed its credit yield at 3.53% at the end of 2014. Even so, its yield remains the highest in the Spanish banking sector.
Next, BBVA and Sabadell have applied a price cut of 20 and 19 basis points, respectively, bringing their interest rates to 3.32% and 2.80% in each case. To a lesser extent, Santander has also made its loans in Spain cheaper (by -6 basis points), and so too have Caixabank (-2 basis points) and Bankinter (by one basis point).
Popular, Sabadell and BBVA also lowered their lending rates during the last quarter of 2014, with respect to the previous quarter, whereas all of the other entities chose to maintain their rates unchanged. In any case, the downwards trend in the price of loans granted by Spanish banks is mitigated by the fact that the overall yield depends on the performance of the whole portfolio and not only on that of new loans.
Bankia is not included in this analysis, because it has not yet presented its results for 2014. It is awaiting notification of the percentage of the charge that the Fund for Orderly Bank Restructuring (the FROB) will assume in the payment of compensation for the claims made against its IPO in 2011.
The banks consider that reducing returns on deposits will continue to offset the lower returns on its loans, and therefore they will avoid any squeeze on their client margins, which is following a slight upwards trend, and will allow them to protect their results from the top of the income statement.
However, the price of retail liabilities is ever closer to bottoming out, and therefore the main challenge facing the banks in the short term is to try to offset cheaper loans with higher volumes during a year in which the total credit balance will remain stable or increase slightly, according to some entities.
In any case, in the second phase of the loan war that has begun this year, price is not the only competitive advantage being offered by the banks; they are also increasingly striving to adapt their products to the needs of clients.
In terms of loans to companies, businesses value the speed of response to their loan requests and in-depth knowledge of their business and needs. In terms of the mortgage offer, the requirement to link them to other indicators and products (payroll, average balances, credit cards, insurance, pensions, etc.) is decreasing and the amount loaned as a percentage of the property value (LTV) is increasing.
Original story: Expansión (by Alicia Crespo)
Translation: Carmel Drake