Financial Sector Evaluates Impact of ECB Interest Rate Hikes and Potential Credit Constraints

The financial sector continues to keep an eye on taking advantage of the tailwind of the interest rate hikes from the European Central Bank (ECB), while remaining attentive to what happens with the dark clouds that remain in the future. One of the first consequences of the change in monetary policy in the Old Continent is the brake on credit. An effect that is not due to a problem of supply, but of demand, as José Ignacio Goirigolzarri, president of CaixaBank, explained on Tuesday during his speech at a forum for the 45th anniversary of Five days.

“The tightening of credit is the consequence of monetary policy, which is what it intends to do. It is not only a matter of supply, which is affected by interest rates, but it is also a matter of demand”, Goirigolzarri has had an impact. Despite this, the manager of the largest bank for his business in Spain does not foresee significant falls in the coming years. On this issue, Alejandra Kindelán, president of the Spanish Banking Association (AEB), has stressed that it is about the transfer of this policy to curb inflation. “Credit conditions change and that impacts demand,” she stated.

What has surprised most of the speakers at the financial sector forum is the downward trend in the feared defaults. “Fortunately, delinquency does not rise. We have all been surprised, even those of us who were more optimistic”. Although he has qualified that they cannot relax: “I think we have to be prudent.”

Goirigolzarri has reported a series of reasons behind this positive evolution that allows families and companies to better withstand the ravages of the cooling of the economy and the upward spiral of prices. Among the reasons given is a better performance of the Spanish economy than expected, the strength of the labor market —”in private delinquency, the correlation between defaults and unemployment will not be 100% but it is close”, said the president of CaixaBank— and the change between the starting situation in the 2008 crisis and the current one. “There has been an extraordinary change in both the financial situation of families and companies, which are much less indebted,” he concluded.

The first sword of the Catalan bank has also referred during his speech to the presence of the State in the capital of CaixaBank. On this issue, he has repeated that it is not up to the entity to set the exit, since that depends on the Fund for Orderly Bank Restructuring (FROB). What he has affirmed is that there is no political interference, although he did have a certain emotion at knowing his decisions: “Neither at Bankia nor at CaixaBank, I have never seen any interference in our management. It is true that with the remuneration policy there is always some excitement to see what the FROB votes”. In fact, in the last two shareholders’ meetings the State abstained from this vote, and three years ago it even voted against it.

Remuneration of deposits

Another of the major issues that has focused the second day of the 45th anniversary of CincoDías has been the remuneration of deposits. The bank is still in the tail wagon in Europe and is one of the countries where lower profitability is offered to families. On this, Víctor Iglesias, CEO of Ibercaja, has assured that this delay is close to ending. “A more general payment of deposits will occur in this second semester, in an orderly manner. Up to now it has not happened because in order to pay deposits in a general way, income first has to improve, that is, the mortgage portfolio has to be repriced, which in our case takes between 18 and 24 months”, Iglesias has assured.

Another of the factors that has made Spanish banks more reticent with the remuneration of savings is the abundant liquidity in the market. And, according to a recent report by the Bank of Spain, banking concentration is not helping either. Despite this, Goirigolzarri considers that there is a high level of competition in the country. Kindelán, for his part, has assured that with the return of cheap financing from Europe, the so-called TLTRO, he will require entities to change their strategy on the remuneration of deposits.

Both managers have also addressed the evolution that is being followed in the remuneration of liabilities, both with families and with companies, where more is paid and is in line with the Eurozone average. This difference, according to the president of CaixaBank, occurs because in the years of zero or negative rates the banks did pass on the cost of depositing the funds at the ECB to companies, but not to retail customers. “Just as the companies were the ones that paid the negative rates, now they are also the first to be paid. And it will reach individuals, but it is normal for them to go later ”, argued Goirigolzarri.

Complete the banking union

During the second day of the forum, Kindelán, president of the AEB, also spoke, has urged the completion of the banking union. “It is essential that the last pillar of the banking union is completed: the single deposit guarantee fund for Europe”, he highlighted.

The president of the AEB has also highlighted the strength of the Spanish financial sector, which is in a very different position from the United States entities that have experienced serious problems in recent months. “In Spain, a lot was learned from the previous crisis,” she said. On the other hand, she has referred to the relationship with the Government, after a few years in which important sectoral agreements have been reached, such as the expansion of the Code of Good Practices to protect vulnerable debtors in trouble.