A banking merger would distance Spain further from the EU in financial competition

The purchase of Banc Sabadell by BBVA would widen the current gap in the Spanish market with respect to Europe in banking competition.

Oliver Thansan
Oliver Thansan
15 May 2024 Wednesday 10:22
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A banking merger would distance Spain further from the EU in financial competition

The purchase of Banc Sabadell by BBVA would widen the current gap in the Spanish market with respect to Europe in banking competition. The suppression of the fourth largest bank in Spain would create a market with fewer opportunities for clients than those enjoyed by the large countries of the European Union: Germany, France and Italy.

With data from 2022 (latest available), Spain was at 1,327 on the index, four times higher than the level Germany is at or double that of France and Italy. Puig warns that regardless of where the index is, what is worrying is that the Spanish market is far from the most developed countries in the European Union. The situation would obviously worsen if Sabadell were integrated into BBVA.

Some analyzes place the competition index in Spain at around 1,800 if the union of the two banks is carried out. That level is what is considered worrying in the terminology of the European Central Bank (ECB). Broadly speaking, when the level is less than 1,000, it means a low concentration. An index between 1,000 and 1,800 indicates a medium concentration and a level above 1,800 indicates a high concentration. In the case of Catalonia, the situation is even worse since with data from 2022, the community already has an index of 2,238, which would exceed 2,800 with the possible disappearance of Sabadell. “The level of banking concentration in Catalonia would be the highest in Europe if the operation materializes,” said the Department of Economy of the Generalitat headed by Natàlia Mas.

Apart from the Generalitat, the central government and especially the Minister of Economy, Carlos Body, have warned from the same day that the hostile takeover was announced that the operation was detrimental to the Spanish economy due to the effects it had on competition.

While BBVA defends the opposite and maintains that the operation is good for clients because it will allow more credit to be mobilized.

Although he has not directly referred to the operation, the governor of the Bank of Spain, Pablo Hernández de Cos, declared last week that it was necessary to analyze whether Spain had reached an excessive level of banking concentration. The Spanish market has gone from having fifty financial entities in 2008, before the real estate crisis began, to 9. This figure does not include subsidiaries of foreign banks or small-sized entities or the so-called neobanks.

If the Herfindalh index shows that there is a high banking concentration, it is possible that the Spanish Competition authorities would impose some corrective measure on BBVA to continue with the integration.

The Generalitat warns that the lack of competition in Spain has already been suffered by clients with the remuneration of deposits in the period of rate growth since it has been placed at the lowest level in the entire European Union. According to the ECB, last March the remuneration on deposits in Spain was below 2%, while the European average is close to 3% with countries such as Italy above 3.5%. According to the Department of Economy of the Generalitat, the merger of BBVA and Sabadell would further harm clients who could not benefit from the current scenario of high rates. Concern about the low remuneration of deposits in Spain is something shared by the ECB itself and also by the Government of Spain, which complained in recent months that Spanish banks were not adequately transferring monetary policy to society. Although actually part of it does. The rise in rates has caused an increase in the cost of mortgages. What remains is the second part, that of the aforementioned increase in deposit remuneration.

Banking sources maintain that in Spain little is paid for deposits due to the high liquidity that the sector has, which makes it unnecessary to attract more resources from the market. The truth is that high liquidity also occurs in banks in other countries and, however, in those markets the remuneration is higher.