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Spanish Banks Rank at the Bottom of Europe in Terms of Solvency in Q1

The Spanish banking sector is positioned as the worst of the 26 countries in the year and almost three percentage points below the average of all banks in the eurozone, which stood at 15.53% at the end of March. The 111 largest banks in the euro area rose in the first quarter from 15.38% in the previous quarter and from 14.99% in the first quarter of 2022.



Spanish banks ranked at the bottom of the eurozone in terms of solvency in the first quarter. A position it has already occupied on different occasions.

Specifically, the country’s ten banks analyzed had a common equity CET 1 ratio of 12.71%, according to the European Central Bank’s supervisory statistics for the banking sector for the first quarter of 2023. Despite being in the last position, the ratio has increased compared to previous months.

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Lack of remuneration of Spanish banks leads to deposit leakage of more than 20 billion in three months

The capital ratio measures the financial health of a bank. It relates the funds it has available to cope immediately with possible unforeseen events to the risk it assumes through the assets it has on its balance sheet. To demonstrate their solvency, financial institutions are obliged by the regulator to maintain a percentage of capital in relation to their assets at risk.

The Spanish banking sector is positioned as the worst of the 26 countries in the year and almost three percentage points below the average of all banks in the eurozone, which stood at 15.53% at the end of March. The 111 largest banks in the euro area rose in the first quarter from 15.38% in the previous quarter and from 14.99% in the first quarter of 2022.

Estonia has the highest capital ratio in the eurozone, at 22.56%. Among the business model categories applied in the Single Supervisory Mechanism, global systemically important institutions (G-SIIs) had the lowest aggregate CET1 ratio (14.45%), and development/promotional institutions were the highest (31.19%).

Estonia is followed by Latvia’s financial groups (21%) and Luxembourg’s (slightly above 20%). On the other side of the table, above the Spanish banks, are the entities of Greece (14%) and of Austria (slightly below 15%). The banks in these two countries are also below the aggregate average for the eurozone banking sector.

Renta 4 pointed out that these percentages should be taken with caution because “there is a lack of comparability” between the data. As they explain, these capital ratios come from internal risk models and in the case of Spanish banks they are “more exhaustive”.

In this way, Spanish institutions “come out worse in the picture”. Previously, these models were unified, that is, they were measured by the same parameters, but now they are not. For this reason, they insist that having the lowest CET1 does not mean that “the banks are bad”.

Each year, the ECB determines these minimum capital levels based on the risks of each institution. The objective is to ensure that banks have sufficient own funds to absorb potential losses.

During 2022, the supervisor urged banks to be prudent in maintaining high levels of capital in the face of an expected deterioration in the economy caused by the high-price crisis and the accelerated rise in interest rates. And the average of all banks has improved compared to previous quarters.

The ten Spanish banks analyzed by the ECB exceed the CET1 requirement set by the supervisor

A percentage that is updated every year, except in the case of Bankinter, which is every two years. In 2023, the required capital ratio for Bankinter is 7.73% and its figure is 11.79%; in the case of Unicaja, the required ratio is 8.27% and its latest figure is 12.75%.

The ECB requires Banco Santander to obtain a CET 1 of 8.91% and its figure is 13.11%; for BBVA it requires 8.72% and its latest figure is 12.97%; for CaixaBank, 8.44% and it has 12.66%. In the case of KutxaBank, the supervisor’s requirement is a ratio of 7.68% and it is at 11.70%. In Abanca, it is 8.13% and its figure is 12.50%; Ibercaja has a requirement of 8.21%, but the latest figure is 12.65%. Finally, the ECB requires Cajamar to have a ratio of 8.41% and its figure is 13%.

On the other hand, this statistic also measures asset quality through different metrics. One of these is the non-performing loan ratio (NPL ratio) excluding cash balances on demand. In the first quarter of 2023, this ratio decreased slightly for the eurozone banking sector as a whole to 2.24%.

In aggregate terms, the ratio of special surveillance loans (stage 2) to total loans fell to 9.31% (from 9.62% in the previous quarter). The stock of loans with a “significant increase” in credit risk rose to EUR 1.351 billion (EUR 1.380 billion in the previous quarter).

The return on equity (RoE) of the 111 banks supervised by the ECB rose sharply to 9.56%, compared to 7.68% for all of 2022, on higher operating income due to a 24% year-on-year increase in interest income and a fall in impairments and provisions.

Return on equity is the percentage obtained by dividing net profit after tax by shareholders’ equity, which is capital and reserves, and indicates a bank’s profitability and its ability to remunerate shareholders with the capital they have invested. The higher the return on equity, the higher the bank’s return on equity.

The percentage of return on equity varies greatly from country to country. The ten Spanish banks supervised by the ECB have a RoE of 11.34%, the French 7.60%, the Germans 6.42%, the Italians 13.13%, the Dutch 11.13%, the Portuguese 14.44%, the Irish 8.78%, and the Greeks 11.35%.


(Featured image by Jorge Fernandez Salas via Unsplash)

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First published in EL INDEPENDIENTE, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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Andrew Ross is a features writer whose stories are centered on emerging economies and fast-growing companies. His articles often look at trade policies and practices, geopolitics, mining and commodities, as well as the exciting world of technology. He also covers industries that have piqued the interest of the stock market, such as cryptocurrency and cannabis. He is a certified gadget enthusiast.