After consecutive crises in recent decades, it has become clear that a healthy and strong banking system is indispensable in both good and bad times. In the former, it prompts economic growth through, for example, bank loans to corporations that will, in turn, create employment. On the other hand, as witnessed in 2007-2008, unstable banks can actually harm the economy and the financial system. The stricter regulations implemented in EU countries after the financial crisis helped the Spanish banking system cope with the economic impact of the coronavirus pandemic. However, despite being better prepared, the Spanish banking system recorded lower profitability in 2020 compared to the previous year.
Overall, most indicators reveal a healthy development of the Spanish banking system. Spanish banks’ assets reached a value of roughly three trillion euros in 2021, a size that nearly trebled the country’s GDP. Despite falling to 6.5 percent in 2021, the banking system capital to assets ratio showed a positive trend in recent years, which meant that Spanish banks have more capital to cover their assets. Furthermore, the loan portfolio of banks continued to improve. The ratio of non-performing loans (NPL) stood at 2.85 as of 2021, the lowest value since 2011. Finally, Spanish banks’ profitability quickly recovered from the aftermath of the COVID-19 pandemics. As of December 2021, the Spanish banking system reported one of the highest return on equity (ROE) among EU countries, four percentage points above the European average.
How are Spanish banks dealing with the digital revolution?
The adoption of new banking methods, such as mobile and online banking, is responsible for a massive restructuring of the Spanish banking system. As more and more customers are shifting towards digital banking solutions, most banking operations are now conducted remotely. Hence, to meet their customers’ demand while reducing operating expenses, most credit institutions have implemented measures such as downsizing and closing branches. Since 2010, the number of office branches in Spain has shrunk by nearly 56 percent. It is foreseeable that this process will continue in the near future as the wave of bank merges spreads across the sector, fusing some of the largest Spanish banks together, such as Caixabank and Bankia.
