The context makes it difficult: rising interest rates and, courtesy of inflation, also the cost of living. In Spain, families with mortgages represent 28% (according to the Financial Survey of families published by the Bank of Spain) and Spaniards who have a deposit, with an average of €28,000, reach 96%. There are many people affected by the current, and complicated, economic scenario. For this reason, banks have decided, as they have done in previous periods of crisis, to reach out to their most vulnerable customers and, to this end, they have implemented a series of measures.
For example, that clients with the greatest difficulties can take advantage of the Code of Good Practices for vulnerable mortgage debtors and, depending on different criteria, extend the term to repay the credit to up to 40 years, benefit from grace periods or freeze installments for a period of time. anus. Always, in an exercise of balance between its own liquidity and investment alternatives that it can offer its clients, such as public debt, mortgage amortization or other products.
A bank channels the money that savers deposit in their accounts towards the credit demanded by those who want to invest in housing, in goods or in the development of their businesses. However, the difference between what you pay for deposits and what you charge for loans doesn't really represent the bank's margin as many think. There are many factors that reduce it, such as the capital buffers that must be met by regulation, personnel costs, maintenance of distribution channels, marketing and product design that must be continually adapted to customer needs, provisions to deal with non-payments, etc. In fact, banking margins are much lower than those of most other sectors.
For this reason, raising interest rates does not necessarily imply that the banks' margin increases. It depends on many factors: the impact of the interest rate rise on the payment capacity and credit demand of households and companies, the weight of fixed-rate or variable-rate loans, the average term of loans and of deposits, the cost for the bank of remunerating the deposits and the cost for the banks of the debt that they also have or that they have to request in the markets to attract financing.
In a context of negative rates like the one we have experienced in recent years, it is very difficult for the banking business to be profitable, but a rapid rise like the one we are experiencing is difficult for companies and families to digest and, therefore, has an influence much in the demand for credit and in everyone's ability to deal with debts. It also costs banks more to finance themselves and prevents them from recovering the profitability they have lost for so many years operating at ultra-low or even negative rates. The benefit in Spain of the entities continues to be 23% lower than it was before the financial crisis.
Interest rates are set by central banks and their objective is to combat inflation, that is their main function. Persistently high inflation is much more harmful to businesses and families than a period of economic cooling off, and that is why central banks have been so forceful with the current rise. Banks not only do not set interest rates, but have greatly reduced their margins so as not to pass on the entire rise in rates to customers.
Banks try to provide the best service to their customers and help them make the best decisions to make their savings profitable. Currently, there has been a sharp reduction in the demand for credit. Businesses and families have been hit hard by the rising cost of living and are asking for fewer loans. This makes it difficult for banks to remunerate deposits in an attractive way. However, banks must advise clients to direct their savings towards more attractive alternatives, such as investment funds, public debt, etc. The data shows that the volume of investment funds and public debt in the hands of families is at all-time highs. The early repayment of mortgages has also increased a lot.
On the contrary, it is true that in Spain there are entities that are offering deposits with returns even above 4%. They are smaller entities, with a very aggressive strategy to gain share in deposits, since they do not have the capacity to offer other types of savings products to their clients. In Spain, clients have full freedom to move their savings and there is a lot of competition between entities. This type of offer requires the rest of the financial players to be very attentive, to always offer competitive options to customers and to continue to trust said bank.
Commercial banks are transmitters of the policy that central banks decide. The reason why Spanish banks pay slightly less than banks in other countries is because they have a more comfortable liquidity position and do not need to attract deposits to have said liquidity, despite the fact that the central banks have decided that there is less money in the system to fight inflation. Where they are competing a lot is in offering better returns on other products that may be more profitable for their clients, such as investment funds, insurance, etc.
The truth is that they are not transferring all the rise in interest rates to the price of credits so quickly. In fact, according to data from the Bank of Spain, the price of credit in Spain is below that of the euro area. For companies, for example, the average in Spain is 3.9% compared to 4.2% in the euro area. Spanish banks have always been known for offering loans at very competitive prices, which has allowed, for example, access to the mortgage market for many segments of the population. In addition, it must be taken into account that the credits are given for a much longer term than that of the deposits. When interest rates were negative, banks did not charge customers to keep their savings.
In Spain, banks have implemented measures to help customers who are in a situation of vulnerability to mitigate this situation. For example, customers who are subject to the Code of Good Practices for vulnerable mortgage debtors, who have an income of less than 25,200 euros and have a mortgage, may extend the term to pay the credit up to 40 years and establish a grace period of up to 5 years to Euribor-0.10%. Another measure is that households with income between 25,200 and 29,400 euros and in which the monthly mortgage payment represents at least 30% of the income may benefit from the freezing of payments for up to 12 months and extend the term of amortization 7 years.
As in all sectors, the benefits have a specific destination. Almost a third is used to pay taxes; another third, to remunerate the shareholder, who are the owners of the entity; and the last third is to accumulate the necessary capital to be able to continue developing its main function, which is to finance companies and families. The better the banks are, the better they can fulfill their function of providing credit and sustaining the growth of the economy.
Spanish banks are very solvent. It is highly diversified and has a solid and simple business model, focused on meeting the financial needs of companies and families. The American banks or the Swiss Credit Suisse affected by the latest turmoil that has occurred in the banking sector experienced exorbitant growth with activity concentrated in very few clients, very poor management and much weaker supervision than there is in Europe . Spanish banks are very good at risk management, as well as efficient and profitable. These are three key variables to maintain customer confidence, something that has failed in the case of American banks. Without trust, the banking business is unsustainable.
