Spanish Economic and Financial Outlook

Spanish Economic and Financial Outlook Spanish banks: Improved performance in the face of financial turbulence Volume 5 ♦ Number 2 Volume 2016 Letter from the Editors Volume 5 ♦ Number 2 03 07 The ECB and banking union: March 2016 Towards a more integrated and resilient Europe José Manuel González-Páramo 21 Spain’s economic slowdown in an uncertain context Ángel Laborda and María Jesús Fernández The Spanish economy: 35 The need for restoring growth potential and modernisation Emilio Ontiveros, A.F.I. The European Investment Fund: 45 Challenges and opportunities for Spain Carmen López Herrera, A.F.I. 53 Challenges ahead for the banking industry Carlos Ocaña and Alice Faibishenko Spanish Economic and Financial Outlook The Spanish banking sector in the financial turbulence 67 of 2016 Orders and information: Santiago Carbó Valverde and Francisco Rodríguez Fernández Regulations on banks’ sovereign bond holdings: Funcas 75 Caballero de Gracia, 28 Assessing the impact of potential changes 28013 Madrid Victor Echevarria Icaza and Francisco J. Valero López, A.F.I. Spain Phone: 91 596 54 81 85 Regional concentration of the Spanish banking market Fax: 91 596 57 96 Joaquín Maudos [email protected] www.funcas.es SEFO The Spanish banking system: 99 The process of cleaning up property assets José García Montalvo Recent key developments in the area of Spanish 111 financial regulation Prepared by the Regulation and Research Department of the Spanish Confederation of Saving Banks (CECA) 115 Spanish economic forecasts panel: March 2016 Funcas Economic Trends and Statistics Department Editorial Board of Editors Carlos Ocaña Santiago Carbó Ángel Laborda José Félix Sanz Managing Editors Alice B. Faibishenko Juan Núñez-Gallego Board of Trustees Isidro Fainé Casas (Presidente) José María Méndez Álvarez-Cedrón (Vicepresidente) Fernando Conlledo Lantero (Secretario) Miguel Ángel Escotet Álvarez Amado Franco Lahoz Manuel Menéndez Menéndez Pedro Antonio Merino García Antonio Pulido Gutiérrez Victorio Valle Sánchez Gregorio Villalabeitia Galarraga Contact [email protected] Web Site www.funcas.es Orders or claims: Funcas, publications Tel.; +34-91-5965481, Fax: +34-91-5965796, e-mail: [email protected] Electronic edition An electronic edition of this journal its available at http://www.funcas.es/Publicaciones/Index.aspx?Id=47&ddg=0 Printed in Spain Editorial and Production Funcas Caballero de Gracia, 28. 28013 Madrid (Spain) Ownership and Copyright: © Funcas 2012 ISSN print edition 2254-3899 ISSN electronic edition 2254-3880 Depósito Legal: M-10678-2012 Prints: Cecabank. FEATURES 07 The ECB and banking union: investment opportunities for Spain. Towards a more integrated Taking advantage of these opportunities and resilient Europe to support business projects, in José Manuel González-Páramo collaboration with public authorities, can help boost growth and job creation. Europe´s recovery from the recent crisis is largely attributable to the role played by the 53 Challenges ahead for the ECB and the support of European authorities banking industry in creating the banking union. Despite Carlos Ocaña and Alice Faibishenko noteworthy progress, further strengthening of Europe´s institutional and legal framework A unique macro environment, stricter is necessary to construct a more united and regulation and technology-related disruptive resilient Europe to face future challenges. change represent the main actual and forthcoming challenges for the banking 21 Spain’s economic slowdown industry. Banks´ adaptation strategies in in an uncertain context response to these challenges will likely forge Ángel Laborda and María Jesús Fernández a new industry structure. Fears of a global recession seem unfounded, 67 The Spanish banking sector in but a high degree of financial market the financial turbulence of 2016 volatility still represents significant risks for the global economy. In Spain, one-off Santiago Carbó Valverde and Francisco growth drivers in 2015 are wearing off, Rodríguez Fernández compounded by the worsening of global In the context of a difficult start to 2016, the conditions, which is expected to slow GDP Spanish banking sectors´ recent performance growth this year and next, while downside on profitability and solvency indicators risks remain considerable. has been positive and transparency has improved. As the outlook ahead remains 35 The Spanish economy: The need equally complex, banks in Spain and in for restoring growth potential Europe will have to adopt transformational and modernisation changes across key areas to remain Emilio Ontiveros, A.F.I. competitive. The Spanish economy´s recovery is currently 75 Regulations on banks’ sovereign outperforming that of the eurozone average. bond holdings: Assessing To achieve sustainable growth over time, it the impact of potential changes will be essential to modernise the Spanish economic model with a focus on increasing Victor Echevarria Icaza and Francisco J. competitiveness through a variety of Valero López, A.F.I. channels in addition to lower input costs. The increase in banks´ public debt holdings 45 The European Investment Fund: has raised concerns from regulators over the Challenges and opportunities current treatment of such holdings on banks´ for Spain balance sheets. Potential changes to existing risk weightings and the introduction of limits Carmen López Herrera, A.F.I. on holdings could bring both positive and The rollout of the European Fund for negative implications for sovereigns and Strategic Investments (EFSI), also known banks and should be accompanied by further as the Juncker Plan, creates attractive progress on banking union. 85 Regional concentration of the Spanish banking market Joaquín Maudos The profound restructuring of Spain´s banking sector has resulted in a significant increase of concentration across almost all provinces. Despite the much needed correction of installed capacity in response to the crisis, the resulting situation may warrant assessment of its potential implications for competition. 99 The Spanish banking system: The process of cleaning up property assets José García Montalvo The recovery of the Spanish economy in 2015 allowed the financial sector to significantly reduce its volume of troubled assets. However, progress was primarily concentrated in a decrease in doubtful loans, as banks continued to accumulate foreclosed assets on their balance sheets. 111 Recent key developments in the area of Spanish financial regulation Prepared by the Regulation and Research Department of the Spanish Confederation of Savings Banks (CECA) 115 Spanish economic forecasts panel: March 2016 Funcas Economic Trends and Statistics Department 121 KEY FACTS Economic indicators Financial system indicators Letter from the Editors Although financial market tensions have fiscal and political union will also need to eased since the start of the year, doubts be considered. remain about the situation in China and other emerging markets, as well as a We then assess the economic outlook possibility of a new global recession. In for Spain over the short and medium response to financial market volatility, term, as well as present considerations falling oil prices, and the deteriorating on how to improve longer term growth outlook for the global economy, in its perspectives. After growing at a rate of latest monetary policy meeting on 3.2% in 2015, the impact of the one-off factors that stimulated growth last year is March 10th, the ECB announced a wearing off. This, together with worsening larger than expected stimulus package, global economic conditions, at least in which included interest rate cuts and 2016, has led us to expect slower GDP an expansion of its quantitative easing growth in Spain this year and next, 2.7% asset-buying program. Market reactions and 2.3%, respectively. On the fiscal front, to the initial announcement were positive, the 2015 deficit target of 4.2% will be but Draghi´s comments that interest rates surpassed. For the economy as a whole, probably would not fall any further amid downside risks are considerable, deriving concerns over the impact for European from the possibility of renewed tensions banks raised concerns over the possible in financial markets and the possible limits of ECB policy. negative impact of prolonged domestic In this context, the March SEFO takes a political uncertainty on investment and detailed look at the role of the ECB during employment decisions. the latest crisis and post-crisis period, While Spain´s economic recovery currently together with the additional actions that outperforms that of the EU, restoring will be needed from European institutions growth potential and modernising the to construct a more united and resilient Spanish economy remain key objectives. Europe. The ECB has been critical Increasing competitive advantage of to Europe´s emergence from the crisis. In sectors towards a knowledge-based addition to consolidating its traditional role economy will require building up of guaranteeing price stability, it took on technological and human capital, creating new tasks, such as guaranteeing financial the right incentives for entrepreneurship, stability and banking supervision. But and improving institutional quality and the ECB cannot act alone to secure the social inclusion. Taking advantage of integrity of the European project. This will attractive investment opportunities for require further strengthening of European infrastructure projects and SMEs arising institutions. In the immediate future, the from the recent creation

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