It has been a harrowing few years for the Spanish banking system, but now, some experts believe that it is on a positive course for the future.
“There’s no doubt that the large-scale restructuring undertaken [by Spanish banks] through 2012 and that was required for the system to get back on its feet is now more or less complete,” said Carmen Munoz, a senior director in the financial institutions group at Fitch Ratings in Barcelona. “Those banks that were the most vulnerable have been recapitalized, and all banks are complying with regulation for provisions against real estate loans.”
Today, the stronger banks in Spain have recurring income generation capacity and have reached a position from which they can start to go back to relying on a “business-as-usual mode,” through which they can generate revenues from retail franchises, Munoz said. “Together with cost-control measures, this will strengthen them further and support their bottom line. The restructured banks, meanwhile, are concentrating on downsizing.”
One important factor that experts point to is the resurgence of the covered bond market in Spain. Prior to the crisis, Spanish banks relied on covered bonds for their funding purposes, and in January, more than 6 billion euros of European covered bond issuance came from Spain.
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That’s the same volume that was issued in Q1 2012, according to Ralf Grossmann, head of covered bond origination at Société Générale in London. However, while in 2012 Spanish covered bond issuance ebbed and flowed as a reflection of the concerns investors had over the banking sector, many investors now are far more optimistic about the health of Spanish banks, and that increased confidence is likely to lead to a more sustained and stable flow of new deals, he said.
“We do expect issuance windows this year to be larger and more sustained given that the situation has fundamentally improved and as investors shift their focus away from the banking sector and toward the Spanish economy in general,” Grossmann said.