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February 20, 2009updated 24 Jan 2022 7:23am

End of the fiesta

Spains banks suffered in 2008, just less than banks in other major economies Still, Santander and BBVA were two of Europes most successful banks last year

By Rodrigo Amarai

Spain’s banks suffered in 2008, just less than banks in other major economies. But 2009 is shaping up to be a much tougher proposition, and the almost certain outcome will be market consolidation. Still, Santander and BBVA were two of Europe’s most successful banks last year. Rodrigo Amaral and John Hill report.

Annual figures from Spain’s commercial and savings banks (the cajas) show that the country managed to report a reasonable performance in 2008. The emphasis that the likes of Santander and BBVA have put on retail banking, for traditional and regulatory reasons, help to explain to some extent why they escaped from the worst of the global downturn.But Spanish banks face a challenging environment in 2009, not the least because many of them are highly exposed to a property market in deep crisis. Loan delinquency rates are growing fast, casting doubts over the viability of some of the mid-sized and small players to survive as independent entities. According to the Bank of Spain, delinquency levels reached 3.29 percent in 2008 across the Spanish financial system as a whole, the highest since 1997.

“The risk is that it reaches some 6 percent or 7 percent by the end of the year,” says Albert Castillo, an analyst at Madrid-based Capital Bolsa, an equity research firm.

Powerful regional ties

Talk about imminent mergers are the order of the day as the most exposed banks seek ways to address mounting delinquency problems.

The process has already started among the cajas de ahorros, the 45 powerful regional mutual saving banks which control around 50 percent of deposits (as of end-of 2007), whose delinquency levels are higher than at commercial banks. For the savings banks, however, the economic argument for a merger is often overshadowed by political imperatives that push in the opposite direction.

Cajas’ boards are dominated by regional governments, and managers have to tread carefully. Caja Madrid, for instance, the second largest savings bank in the country, is in the middle of a tug-of-war between its current chairman, Miguel Blesa, and the government of the Madrid province.

Another example has been the drama surrounding the future of Cuenca-based Caja Castilla-La Mancha (CCM). CCM posted profits of only €42 million ($53 million) in 2008, against €170 million the previous year, and saw delinquency rates increase nine-fold to 4.6 percent.

A merger with Malaga-based Unicaja has been touted – but critics have begun to complain that it is being forced through by the central government in order to help fellow Socialist politicians. Last year, a merger between Kutxa and BBK, two Basque saving banks, failed to materialise after political feathers were ruffled during the process. Difficulties are even bigger with mergers across provincial borders, as in the case of CCM and Unicaja.

On 19 February, ratings agency Fitch downgraded CCM in light of the impact the “sharp ongoing adjustment in the Spanish economy and property sector” is having on CCM’s asset quality and profitability. CCM has a high exposure to the construction and real estate sectors (44 percent of lending) and, as at the end of the first half, CCM’s reported Basel II regulatory Tier 1 capital ratio was only 5.67 percent. Fitch stated: “Support [for CCM] could be forthcoming through a capital injection by the Spanish state and/or a merger with a stronger savings bank”.

Roberto López Abad, the CEO of one of Spain’s largest savings banks, Caja Mediterráneo (CAM), acknowledged that mergers are set to be the only option for some cajas as they face a period of zero growth and need to find ways to deal with booming delinquency rates.

“But it is difficult that a merger agreement be ruled only by economic criteria,” he said, while presenting the bank’s 2008 results. CAM posted €390 million in profits, a 1.2 percent increase over 2007, but also reported that delinquency levels increased six-fold to 3.96 percent.


Spain – banks ranked by branch numbers


Nos of branches

Nos of ATMs

Nos of retail customers (m)

Cost-income ratio FY08

Santander (Group)





BBVA (Group)





la Caixa





Santander (Spain only)





BBVA (Spain only)





Banco Popular





Banco Sabadell





Banco Pastor










E=estimate Source: RBI

Commercial bank mergers

Merger talk concerning the country’s commercial banks has tended to focus on mid-sized firms that saw their market value plummet in 2008. Banco Popular, Banco Sabadell, Bankinter and Banco Pastor are often mentioned as possible targets for acquisition by bigger players or as candidates for mergers between themselves.

Banco Popular shares have lost more than 70 percent of their value since the start of 2008, for instance, though all mid-sized banks have suffered badly. La Coruña-based Banco Pastor has also lost around 70 percent of its market value since its peak in 2007.

Pastor reported net profits of €164.1 million, an 18.8 percent drop over 2007, though profits would have reached €204.4 million if the bank had not directed several millions in profits to strengthen its provisions, something Spanish banks are under pressure from the Central Bank to do.

On the plus side, Pastor said its client base increased 14 percent during the year. But delinquency rates reached 3.6 percent, against 0.82 percent one year before. On presenting the results, chairman José María Arias denied that negotiations for the sale of the bank are taking place.

“There is nothing new under the sun,” he said, though he warned that the full force of increasing loans delinquency will be really felt in Spain in 2009.

Other mid-sized banks also posted results that are far from the highs of previous years but do not look too bleak if compared to their Anglo-Saxon peers in the US and UK. Bankinter, which focuses on SMEs and affluent clients, had net profits of €252 million, a 1.6 percent increase over 2007 if extraordinary items are excluded, and boasted that it has the “lowest delinquency levels” of the European banking system at 1.34 percent.

Banco Sabadell’s profits increased 1.7 percent to €674 million; Banco Popular saw its profits fall 16.8 percent in 2008, but still reported over €1 billion in net income. Neither of them looks set to need a merger in the short term, said Castillo at Capital Bolsa.

“They are more likely to try and strengthen their balance sheets and to restructure their businesses before they have to discuss mergers,” he points out. Another analyst said that executives at Spain’s commercial banks consider mergers “inevitable” – but in the medium term at the earliest.

Assets. Spain - banking groups ranked by total group assets, end-of 2008

Santander and BBVA remain in front

The two market leaders, Santander and BBVA, have dodged many of the problems faced by global league rivals like Royal Bank of Scotland, Deutsche Bank and Citi with their focus on retail banking. Santander, for instance, made 75 percent of its profits from retail banking in 2008.

Despite incurring losses with the Madoff scam and some problems with customers who owned bonds issued by Lehman Brothers, Santander increased ‘attributable’ profits by 9 percent to €8.88 billion (a drop of 2 percent if 2007’s capital gains are included).

Santander and BBVA have also become two of the world’s largest financial groups off the back of numerous acquisitions: in terms of market cap, the two now rank as the Europe’s second and fourth largest banking groups (€49.6 billion and €28.3 billion).

Castillo warns, however, that 2009 could bring problems for the two as countries that escaped the worst in 2008 start to show the effects of the global downturn. Latin America emerges an area of concern, he said, as the two banks have a huge presence in the region. BBVA, for instance, is a leading player in Mexico, whose short-term prospects look bleak – though the bank itself denies this (see A rich and poor strategy for Mexico).

For the moment, Spanish banks have managed to avoid being rescued by the state – and remain some of the world’s better run institutions. The country’s savings banks have become firmly established in Spanish society in a way commercial banks and other mutuals across the world can only dream of (see RBI 602): for 2009, for instance, la Caixa plans to allocate €500 million to its Social Projects – social, community and health initiatives it is obliged by law to support.

Nevertheless, the next 12 months will be hard. Some, like la Caixa, the largest savings bank, are preparing for a new economic environment by shedding costs: it is reported to have plans to close up to 250 branches by 2010. But Spanish banks are, collectively, already the most efficient in the world (see cost-income ratios on table).

Market statistics  
Spain – selected full-year results, ranked by group profit % change  
  Group profit after tax (€m) Retail profit after tax (€m)  
Q4 FY08 FY07 % change Q4 FY08 FY07 % change  
 Santander (Spain only) (1) 1,537 5,345 5,043 6 1,079 4,152 3,880 7  
Santander (Group) (2) 1,941 8,876 9,060 -2 2267 9,376 9,085 3.2  
Banco Sabadell (3) -88 673 782 -13.9 n/a 862 825 4.5  
Banco Popular 92.6 1,052 1,264 -16.8 n/a 890 1,163 -23.5  
BBVA (Group) (4) 519 5,020 6,126 -18.1 n/a n/a n/a n/a  
Banco Pastor (5) -5.8 164 202 -18.8 -5.8 164 202 -18.8  
la Caixa (5) 231 1,802 2,488 -27.6 231 1,802 2,488 -27.6  
Bankinter 50.5 252 361 -30.2 26.8 200 231 -13.4  
BBVA (Spain only) (6) -147 1,995 3486 -42.8 446 1,677 n/a n/a  
  Group assets (€bn) Retail loans (€bn) Retail deposits (€bn)
  FY08 FY07 % change FY08 FY07 % change FY08 FY07 % change
 Santander (Spain only) (1) 394 356 10.7 246 235 4.7 135 125 8
Santander (Group) (2) 1049 912 15 555 483 14.9 374 279 34.1
Banco Sabadell (3) 80.4 76.8 4.7 52.9 51.9 1.9 39.8 41.7 -4.6
Banco Popular 110.4 107.2 3 93.3 88.1 5.9 51.7 42.7 21.1
BBVA (Group) (4) 544 502 8.4 n/a n/a n/a n/a n/a n/a
Banco Pastor (5) 27 25.3 6.7 21.2 21 1 13.3 12.9 3.1
la Caixa (5) 261 248 5.2 175 162 8 209 198 5.6
Bankinter 53.5 49.6 7.9 35.5 32.2 10.2 14.3 12.2 17.2
BBVA (Spain only) (6) 319 284 12.3 100.9 n/a n/a 113 n/a n/a
(1) profit figures are before tax, Spain-only retail loans/deposits include non-retail loans/deposits; (2) retail profit is before tax; (3) commercial and retail are reported as one segment, retail profit is before tax; (4) figures are only broken down geographically not by business segment; (5) mostly retail based on group figures are reported as retail figures; (6) method of retail reporting was changed in 2008 so is incomparable to 2007. Source: RBI

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