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Full Steam Ahead for Spanish Banks
Full Steam Ahead for Spanish Banks
While numerous US banks and many of their European counterparts are suffering badly as a result of the subprime mortgage crisis – Northern Rock, the Swiss UBS and the French Société Générale are at the forefront – Spanish banks are sitting pretty.
At a time when many banks are announcing massive losses or significant cuts in their profits, the 2 largest Spanish banks, Santander and BBVA, both saw spectacular increases in their profits for the first half of 2008. Santander, the eurozone’s largest bank and the world’s ninth largest in terms of market capitalisation, experienced a rise in attributable profits of €4.73 billion (22%), while net profits for BBVA increased by €2.93 billion (11.6%). Other Spanish banks also saw impressive profit gains.
A major factor behind the Spanish banking success is the banks’ caution when it comes to granting loans. Spanish banks have rigorous loan criteria and the fulfilling of this has meant they have been almost immune to the subprime crisis. Another advantage enjoyed by Spanish banks is that unlike some other banking giants, Spanish banks are essentially commercial banks with small investment banking divisions.
However, the main reason why Spanish banks have been virtually unaffected by the global subprime turmoil lies with the Bank of Spain. The Bank of Spain, which learnt some hard lessons during the 1980’s when around 50 Spanish banks went bankrupt, applies strict controlling measures on the Spanish banking system. The Central Bank advised against investment in products guaranteed by subprime assets and in some cases, prohibited such investment. As a result, the subprime crisis has had little effect on Spanish banks.
A driving force behind Spanish banking in 2007 was the large number of mortgages, part of the huge property boom experienced in Spain. Now that the property market is experiencing something of a downturn and the mortgage market has fallen, Spanish banks may experience reduced profits. However, many Spanish banks have turned their attentions beyond Europe, particularly to Latin America and Asia. They are particularly strong in Latin America where Santander and BBVA both have a major presence. The Latin American economies have been largely unaffected by the US subprime crisis and many of the continent’s countries such as Brazil and Uruguay have booming economies. Santander has also made moves in the US and in the UK, is the owner of Abbey National and, subject to shareholder agreement, is likely to also buy Alliance & Leicester.
“At a time when so many banks are suffering as a result of the subprime crisis, it’s very encouraging to see that the Spanish banks are going strong,” comments Ken Thorkildsen, Director of Obelisk Private Finance. “This is excellent news for the property investor and restores consumer confidence in the banking system.”
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