Onur Genç remarked on the valuable social contribution made by the Spanish banking sector, at a recent forum organized by the Spanish Banking Association (AEB). According to BBVA’s CEO, “the strength and profitability of Spanish banks is good news for the wider economy.” Looking to the future, “the role of banks, if possible, is more important, as further investments will be needed toward the decarbonization and digitization of the economies.”
BBVA’s CEO took part in the forum alongside his counterpart at Banco Santander, Héctor Grisi, in a round table moderated by the Chair of the AEB, Alejandra Kindelán. Onur Genç addressed the normalization of interest rates and the impact this was having on the banking business, following a decade of rates at close to zero or in negative territory, which was an “exceptional situation.”
During this period, the profitability of Spanish banks has been below the cost of capital, he explained. Indeed, the cost of capital among banks in recent years has been 11% (12% in Spain), while profitability —measured in terms of ROE— has been below 5%, or even in negative territory. “A weak banking sector means less in the way of credit and growth,” he stressed.
This normalization of interest rates, combined with greater business activity, has been boosting the earnings of the banking sector, improving profitability. “For the first time in years, we are seeing banking profitability near the cost of capital,” he added. In this sense,
Onur Genç expects central banks to continue pursuing their current monetary policy—focused on fighting inflation— and interest rates to remain high for a prolonged period.
Turning his attention to the regulatory landscape in the EU, he exclaimed that the biggest barrier to cross-border integration of financial institutions in Europe is still the absence of a fully-fledged single European market. Broadly speaking, “banking regulation is not conducive to bigger banks, due to the absence of synergies and, in particular, because the Banking Union has yet to be completed.” On this point, he noted that the main priority for the next European Commission should be to finalize the Banking Union, with a common deposit protection scheme in place across the entire EU.
Asked about competition from new players in the digital finance arena, he stated that banks are responding accordingly to the changes brought about by technology. According to its CEO, the bank has invested heavily in its digital transformation and this gives it a sizable competitive edge in four key areas: services, sales, new customer acquisition and advice.
Is BBVA responding to the arrival of these new competitors? Onur Genç strongly believes that financial institutions should forge alliances with these new players: “Us banks can bring the customers, while fintechs can bring innovation,” he proclaimed. He also stressed that regulation should promote a level playing field so that banks can compete with new digital players.
As for sustainability, Onur Genç said that “at BBVA we are committed to achieving a decarbonized economy. “First, it is a responsibility with society as a whole, but we also believe that sustainability is the biggest business opportunity for banking during this decade. Therefore, our priority is to accompany our customers in their transition to a more sustainable world.”
In order to make this happen, it is essential the collaboration between the public and the private sectors, with a double angle of promoting decarbonization and inclusive growth. For Onur Genç, “this is the main contribution we can make to society.”