To analyze the Spanish financial sector, we must take into account three factors: the macroeconomic situation, the banking business model and the regulatory framework. In the case of Spain, the rapid rise in interest rates derived from runaway inflation has caused a series of unwanted effects, such as the slowdown in the labor market, the increase in business costs or the stagnation of the real estate sector. . The evolution of these macro factors will have a direct impact on the income statement of financial institutions.
Regarding the regulatory framework, contrary to what happens in the United States, whose regulation has been relaxed since 2017, and where a series of small or medium-sized entities operate with very lax control mechanisms by the regulator, In Europe, the ECB has maintained rigorous supervision of financial institutions and has demonstrated an immediate reaction capacity that has resulted in investors maintaining confidence in the system when problems have surfaced. This fact explains why in Europe we have not experienced bankruptcies like those of SVB, or the First Republic Bank. Credit Suisse, an entity that has been forcibly sold to UBS to avoid liquidity problems that would lead to a systemic crisis, is the example of what was explained before. The crisis of confidence has not spread to other European entities due, on the one hand, to the regulator’s ability to react, and on the other, because its problems were known to it.
If we look at the Spanish banking business model, we see that it is very diversified in terms of business lines, something that does not happen in the United States, and also, the banks have made a huge effort analyzing their debtor portfolios and calculating the risks of non-payment of these, voluntarily offering to renegotiate loans and mortgages with favorable conditions for the borrowers, not out of charity, but to avoid future problems, since increasing the risk of a mortgage portfolio implies devoting more resources to maintaining the capital ratios at the level required by regulatory standards, which has a negative impact on their precious benefits.
We risk concluding that the Spanish financial sector will experience difficulties in the short term, but we will not see bankruptcies like those in the US However, this will depend on the evolution of two issues. On the one hand, the financial crisis will lead to credit restrictions and greater regulatory supervision, to which must be added the tax on banks, which will reduce the profits of financial institutions. On the other hand, if it is not possible to curb inflation, and interest rates maintain their current levels or increase, defaults will increase, and banks will have to make new provisions and the impact on profits will be even stronger.
