basque financial institutions to the current economic situation |
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We should mention the positive response offered by Basque entities to problems within the current economic situation. Basque credit entities are participating in different programmes that have been set up both by the central and regional government so that families and companies can access loans. |
Lecturer at the UPV |
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The Spanish Government,
by means of the Financial
Asset Acquisition
Fund (FAAF), aimed to provide
credit entities with liquidity,
so that they in turn
could concede loans to families
and companies.
Basque financial entities
participated in this programme,
with the exception
of BBVA, Banco Guipuzcoano and Bankoa. The main reason
for participating in the aforementioned programme did not involve
supporting liquidity problems but obtaining low cost financing.
In fact, the interest rate for financing obtained through
the fund was very attractive and offered the chance to stabilise
balance. In total, Basque financial entities obtained 648 million
Euros.
In addition, Basque financial entities have worked on different
issues (mortgage certificates, preference shares, secured
loans, etc.) in order to improve their level of solvency and their
liquidity situation. Thanks to all these operations, along with resources
from passive operations (demand deposits and term deposits),
the aforementioned entities have amassed enough liquidity
to continue offering loans.
On the other hand, all Basque financial entities have participated
in programmes run by the Spanish Government, through
the ICO institute, to finance companies and families.
They have already signed joint agreements with different
companies and associations, and with the Basque Government
and the Government of Navarre. Therefore, it is clear that Basque
financial institutions intend to maintain their commitment
to Basque society.
This commitment is reflected in greater detail in the table.
If we analyse the data published by Basque building societies
and credit cooperatives up to September 2009, we can verify
that the growth rate is dropping for loans awarded to customers,
although it remains
positive. As far as defaulting
is concerned,
the general growth
rate for the default
rate has increased
but it continues to remain
below the rate
for Spain. Due to the
close relationship
that Basque banks maintain with their customers, they
are fully aware of what families and companies are going through.
As a result, banks look for different solutions before defaulting
problems set in, such as refinancing the debt, extending
the loan period or suspending interest.
On the other hand, defaulting cover continued to drop, as
the default rate increased, although the percentage is higher
than the State as a whole.
Basque financial entities
are in a good liquidity
situation to be able to continue
awarding loans in
the future. Furthermore,
no Basque financial entity
has required public aid to
increase their resources,
because they have not suffered
solvency problems;
instead Caja Navarra and
Caja Canaria have set up a
company to merge their
activities, each working separately in their own territory and
jointly over the rest of the country. By means of this operation,
they are aiming to become more competitive and efficient,
whilst strengthening their solvency and liquidity; all without having
to resort to the FROB fund (bail-out fund created by the
Spanish Government to promote fusions and for financial entities
in complicated situations). On the other hand, after having
tried to buy Caja Castilla-La Mancha, BBK will be focussing on
its own business in 2010, although it has not ruled out a future
merger or an acquisition. It should be noted that, as far as solvency
is concerned, Basque banks currently stand among the
top ten in the country and that BBK is the most solvent bank in
the whole State financial system.
As far as efficiency is concerned, efficiency rates have improved
all round due to a reduction in operating costs. However,
Basque financial entities have maintained or increased their number of offices in the Basque Country, despite closing some
branches outside the Basque Country.
Basque banks, on the other hand, compared with Basque
building societies and loan cooperatives, demonstrate negative
loan growth rates and higher default rates. However, despite
this, they hold good solvency, liquidity and efficiency positions.
On the other hand, business financing problems are less frequent,
thanks to different plans designed by financial entities
to combat the current economic situation. In any case, according
to the joint survey carried out by Adegi in September 2009,
38% of companies from Gipuzkoa with more than ten employees
are still in difficulties, both in terms of obtaining financing
and refinancing their debt. The Basque Government Consumption
office also made it known that different conditions have
been established and different criteria used when awarding
mortgages - not only among credit entities but also between
branches of the same financial entity. In fact, negotiating conditions
is left entirely in the hands of each branch manager.
In addition to this, when financial entities cut back on loans,
this intensifies pooling activity by mutual guarantee societies,
as this provides companies with financing to make investments.
Therefore, in the current economic and financial climate,
joint work agreements signed between mutual guarantee societies
and the main credit entities become very important. In
fact, they guarantee entities that all the loans awarded to the
companies endorsed by
these entities will be returned
to them.
As far as the annual
formalisation volume is
concerned, it should be
highlighted that, from
among the twenty two
mutual guarantee societies
that exist in the
country, Oinarri and Elkargi
are in the top ten. Oinarri, in particular, tripled its level of
activity in the first nine months of 2009, and increased formalised
endorsements by 195%. Elkargi has also predicted that it will
have doubled its activity by the end of 2009. This significant increase
is due to financing lines for work capital needs that Elkargi
and Oinarri have signed with the Basque Government.
By the end of September 2009, compared with the same period
the previous year, Elkargi's main endorsing activity dropped
by 6.3% (without taking into account the influence of the working
capital financing line).
Both entities have approved approximately 80% of the total
applications presented to these lines of financing. As an
example of all this, we could highlight the activity carried out
in Navarre by the Sodena mutual guarantee society: a company
whose main function falls within the framework of the Government
of Navarre's plan to combat the economic downturn.
On the other hand, as far as risk capital entities are concerned,
according to the Spanish Risk Capital Entities Association
(ASCRI), in the first nine months of 2009, and compared to the
same period the previous year, the investment and number of
operations carried out by these entities in Spain has dropped,
by 49% and 13% respectively.
Within this context, AXCRI has rewarded the best risk capital
operations carried out during 2008 and, among others, two
Basque financial entities have received awards: Gestión de Capital
Riesgo del País Vasco and Diana Capital, for having participated
in operations for the companies Biopharma and Indal Taldea,
respectively.
Therefore, as the data analysed shows, the Basque Country's
entities, in general, will confront the next financial year with a
greater level of solvency and a lower rate of defaulting than
many of its state competitors. However, if certain national, state
and community promotion policies disappear in 2010, the ability
to award loans to companies and families may well be
affected. On the other hand, increases in VAT and official interest
rates forecast by the European Bank have had a negative
influence on loan applications.
Lack of liquidity, scarce credit and high levels of defaulting
complete the vicious circle and it will not be easy to find a solution.
The situation will not improve unless the economy recovers,
unemployment and defaulting are reduced and businessmen
recover their capability to make decisions concerning investments.
MANAGEMENT INDICATORS FROM THE BASQUE FINANCIAL ENTITIES, |
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