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Banking Updated: 08 Sep 2018

Francisco González: "Spain has implemented one of the most vigorous reform programs"

Spain has gone from being “a seriously ill patient and a source of contagion for the rest of the euro zone” to implementing “one of the most vigorous reform programs,” in the words of Francisco González. Thanks to the reforms undertaken, “Spain is well positioned to register sustainable growth over the next few years,” he said at the UMIP/APIE course today.

Francisco González started his speech at the course organized by Menéndez Pelayo International University (UIMP) and the Spanish Financial Journalists’ Association (APIE), in Santander, by analyzing the lessons learned from the crisis. The BBVA Chairman & CEO believes Spain is a good example of overcoming adversity. When the international crisis started, Spain’s growth model was “unsustainable and it fell apart when the situation turned for the worse,” he explained. This led to a crisis in real estate and banking, the quick deterioration of Spain’s public accounts, a deep and prolonged recession, an unemployment rate that rose to over 27%, and revelations of poor practices and corruption.

Today this situation is quite different thanks to the reforms the country has undertaken, according to Francisco González. Three in particular stand out: the labor reform, the Budget Stability and Financial Stability Law, and the restructuring of the banking system. “Spain has managed to start growing again, underpinned by a model that is very different from before,” he pointed out. Exports have taken over for the construction sector; external financing needs have gone from 10% of GDP in 2007 to a financing capacity of around 1% of GDP in 2014; and the country now has a streamlined financial system.

However, the Chairman & CEO of BBVA warned that the “recovery has arrived, but the effects of the crisis persist,” as reflected by the unemployment rate. In this regard, he praised the Government’s efforts to promote long-term contracts, reform the job training system and passing the Second Opportunity law. However, he pointed out the pending reforms to tackle the dichotomy in the labor market, the need to increase competition in some sectors, and for companies to gain size and adopt new technologies, as well as a deep and stable education reform.

“All of this requires a sustained reform effort that is only possible in a stable political framework,” he said.

In his opinion, the current political scenario in Spain “may serve to reach agreements that regenerate public life and restore the public’s confidence in institutions. And this would be a major step toward consolidating Spain’s economic recovery and building a framework for growth that is more efficient and creates more jobs, wealth and higher standards of living.”Robust financial system.

Robust financial system

Francisco González also talked about the Spanish banking sector. “Today we have a financial system that is much more solid and capable of backing the common economic effort,” he pointed out. However, he warned that “banks have to resist the temptation to expand their balance sheets at any cost,” he said, in reference to deals with margins that do not cover operating costs and the risk premium.

On the other hand, he urged the construction of a more efficient financial system, which supports much lower operating costs. “This requires a radical improvement in the current technological infrastructure, redesigning process and changing the culture and skills of bank workforces,” he said. “Digitizing banks is an inevitable and unstoppable process, which will entail a radical drop in prices and margins. This is positive for citizens and the economy as a whole,” he explained.

He then went over the milestones of BBVA’s digital transformation in the last eight years: the construction of a new technological platform, changes in processes, the launch of digital products, improvements in customer experience, the acquisition of startups, opening platforms to external collaboration and changes in the organization to promote the digital transformation process.

Francisco González summed up BBVA’s objective with these words: “grow in volume and profitability, while improving our customer service and lowering our operating costs thanks to technology.”

Wrapping up, the BBVA Chairman & CEO said, “We are leading the transformation of the banking industry at the global level, as we move toward a knowledge-based service industry.” He added: “We expect BBVA to grow and become much more profitable during this process. However, at the same time, we are building a much more modern and effective financial system. One that is capable of meeting the needs and demands of families and companies at better prices. Therefore, we will be able to boost growth and support the modernization of the economy.”