ANA BERAZA
LECTURER at the UPV
At the start of the economic downturn, credit entities with headquarters located in the Basque Country were in a more favourable situation than many financial entities in Spain, as demonstrated by the solvency, liquidity and profitability in their corresponding balances.
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.
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, priority 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 Cajacanaria 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 volumeis 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.
