Spain’s CaixaBank has warned that competition to make loans in its domestic market was becoming unsustainable because of a squeeze on margins, saying the sector was already heading into another likely round of cost-cutting mergers as a result.
Like their peers across Europe, Spanish banks are struggling to ramp up earnings from loans as interest rates hover at historic lows, while increasingly fierce competition as Spain emerges from recession is eroding margins.
“It’s possible there will be more consolidation,” CEO Gonzalo Gortazar told reporters today. “Indeed, business margins indicate it’s becoming very difficult for the sector to cover its cost of capital, and that’s the answer many banks have usually found to situations like this. Over the next three to four years it would be natural for banks to look for more consolidation in this environment,” Gortazar said, though CaixaBank, still digesting its acquisition of Barclays’ Spanish retail business, would not necessarily take part.
The Barcelona-based bank has been among the most acquisitive lenders in Spain in recent years. But its attempts to jumpstart revenue growth have had mixed effects so far.
Spain’s third-biggest bank by market value, net interest income, or earnings on loans minus deposit costs, dropped by a sharper than expected eight per cent in the third quarter from the previous three months. Net profit rose 26 per cent to 288 million euros but this fell short of an average forecast of 307 million. Falling lending rates were part of the problem, Caixabank said, though the bank has also eliminated almost all “floor” clauses of its mortgages, inherited in large part from some of the Spanish peers it took over. The clauses are designed to protect banks from interest rates falling below a certain threshold but are unpopular with consumers in Spain.