The industry has struggled with negative interest rates for more than five years, but the economic crisis caused by the Covid-19 pandemic has reduced the likelihood that they will be raised imminently. Indeed, many economic indicators indicate that this macroeconomic backdrop will continue for the foreseeable future.
For example, while eurozone inflation climbed to 2% in May and is expected to continue to rise this year, markets anticipate a negative 12-month Euribor through October 2024. This will likely have an effect of drive on profitability, given the The average return on equity of banks in the euro area stood at 5.4% between 2016 and 2020, according to the European Banking Federation. This will force many entities to rethink traditional banking models, focusing more on commission-generating activities at the expense of receiving deposits.
At the same time, the sector is also facing a technological revolution that affects all elements of the banking sector, from infrastructure to distribution channels, including a bank’s relationships with its customers. Banks need to overhaul their existing systems and migrate to new technologies to benefit from the various efficiencies generated by movements such as the migration of data warehouses to the cloud and the adoption of forms of artificial intelligence and machine learning.
The pace of technological change and innovation has given rise to new competitors in the form of shadow banking and fintech, which are subject to less stringent regulations and not hampered by legacy technologies. Data from the European Systemic Risk Board (ESRB) shed light on this problem: at the end of 2019, 40% of European financial assets, or 45,000 billion euros, were managed by non-bank financial institutions, compared to 17 billion euros. in 2005.
We now have a great platform, a new, more robust CaixaBank that allows us to face the future from an unmatched starting point.
José Ignacio Goirigolzarri, Chairman of the Board of Directors, CaixaBank
These challenges are well understood and, as a result, the consolidation of the European banking sector has been a hotly debated topic as traditional banks strive to achieve critical mass in an increasingly fragmented market. However, with a preferred solution of cross-border mergers within Europe difficult due to the lack of a true EU Capital Markets Union, banks have focused on their home market for consolidation and l ‘ladder.
Moving from discussion to action, however, requires alignment of goals as well as financial justification. As one of the main consolidators of the Spanish banking sector over the past decade, CaixaBank continues to build on its track record to create Spain’s leading financial group through its latest merger with Bankia.
The merger means that CaixaBank now has nearly 20 million customers in Spain, a 25% and 24% share in loans and deposits, respectively, and assets of over 620 billion euros in Spain, making it makes the largest bank in the country.
A stronger and more agile bank
CaixaBank has, through this merger, anticipated and taken up the broader challenges of the sector, allowing it to reach a critical size, and to ensure financial stability and sustainable profitability.
An example is the balanced portfolio of the merged bank, which has a strong capacity to generate more income and savings, with around 1 billion euros in synergies, and a better efficiency ratio than the Spanish and European averages. In addition, cost savings will result from a rationalization of overheads and the structure and operating costs of the merged entity will be less than the sum of its parts.
In essence, the merger created a bank capable of generating sustainable profitability despite persistently low or negative interest rates. It will also strengthen its ability to make the necessary investments in new technologies and innovation.
Indeed, the merger has made CaixaBank an institution large enough to be able to deploy the new economic models emerging in the digital age. These new models are built on economies of scale that require the largest possible customer base to develop profitable digital platforms and ecosystems, enabling the bank to deploy digital financial services at scale.
The deal also gave CaixaBank the financial strength for the investment needed to build an attractive project that ensures talent retention. The bank’s strong balance sheet and financial position have also strengthened its financial stability, enabling it to replace existing systems. In addition, given the strengthened position of CaixaBank in long-term savings products, mutual funds and insurance, the new balance sheet is well provisioned and well capitalized, with a bad debt ratio which is the most low among the four major banks in the country and a coverage rate higher than the Spanish average.
However, a successful merger can only be achieved with a common culture, shared values and a clear vision of management. Both CaixaBank and Bankia have deep roots dating back to their inception, based on a differentiated banking model, excellent corporate governance and a clear commitment to society. From day one, the management structure was clearly put in place and aligned with its mission, transparently mitigating the implementation risk inherent in each merger and giving the merged bank the foundation it needs to ensure the future sustainability of the project.
Huge challenges force established banks to make important strategic decisions. For CaixaBank, consolidation through the merger with Bankia has given it a solid foundation to meet these challenges and become an extremely flexible organization, able to respond to a changing environment at tremendous speed. As José Ignacio Goirigolzarri, Chairman of CaixaBank, underlined during his speech at the General Meeting of Shareholders of CaixaBank in May 2021: “We now have an excellent platform, a new, more robust CaixaBank that allows us to face the future from an unparalleled starting point. .