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The banks anticipate negative rates until 2031 and ask the Government to be cautious when withdrawing stimuli to avoid a “cliff effect”

The quicksand in which Spanish banking moves can be longer than the managers of the sector planned. To the consequences of the current economic crisis, such as low credit demand and the expected increase in delinquency, is a negative interest rate scenario that could be extended until 2031.

Financial markets expect the Euribor to remain red for at least another decade. This indicator, which is referred to by most mortgages in Spain, is currently -0.47% supported by the indefinite extension of the European Central Bank’s (ECB) expansion monetary policies.

The fall and prolongation of the negative rate scenario is a blow to the bottom line of the institutions’ bottom line, which derives a gizzar share of their profit through financial intermediation itself. CaixaBank CEO Gonzalo Gortázar yesterday warned during his participation in a financial forum organized by Expansión and KPMG that this was the real trigger for the bank’s recent merger with Bankia.

In 2016, when the Euribor first entered negative ground, no bank manager expected this situation to drag on for three lusters. What seemed like a conjunctural obstacle to bank margins seems to have become structural. “We do the merger with a great conviction to get ahead of ourselves to a more uncertain environment and have a stronger and more prepared entity,” Bankia CEO José Sevilla added 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 major risks to the euro area economy today. The return on the capital of the entities has increased in just six months from 5% – which was already low – to 2%, causing a sharp collapse in the value of their shares and hindering their access to the capital market.

The situation is of particular concern in Spain and Italy, the two countries where the banks’ interest income has fallen the most strongly. “Entities have faced low profitability, a direct consequence of a long period of low rates, and this situation is likely to continue as long as the economy is not recovering,” added KPMG Spain President Hilario Albarracín.

The regulator’s recipe for financial groups to combat this low-profit situation is to reduce their costs. And if they can’t do it alone, the option can go through merging with another entity and trimming all duplications. In short: do the same with less staff, fewer offices and much less spending, as the former Spanish minister worked hard yesterday. “The need to reduce costs is even more necessary than before the pandemic. Consolidation can help carry it out, but it is an instrument and not a purpose in itself.”

At this stage, the toughest of the negotiation, the CaixaBank and Bankia teams are currently working. Each bank has earmarked 2% of its workforce to work on integration, especially teams with a clear legal and technological profile. The aim 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 financial year.

Meanwhile, the rest of the entities continue to look at each other and try to convince investors that they can face the challenges posed by the health pandemic alone. BBVA says that its focus remains focused on the attention of its customers but that, where appropriate, it would study operations that created value, Santander dismisses it because it says that its market share of 20% in Spain is significant after integrating Popular and that those who should be more concerned are small groups, and Sabadell – smaller in size – presumes to lead margins for its muscle in corporate banking.

What everyone agrees on is to ask the government for caution in withdrawing public stimulus that is anesthetating the impact of the country’s brutal economic decline. Banks are aware through direct dealing with their customers that there is a very high risk of credit and insolvency defaults occurring in the coming months, which would raise the blackberry peak to its highest level in 2021.

For this reason, the sector calls for liquidity measures to alleviate the financial asphyxiation of companies launched last spring to be transformed into capitalization measures that prevent their bankruptcy. Your 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 an intense decline in the economy due to the cliff or ribbed effect,” Concluded De Guindos.

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