BBVA - Press Room

 

• The Spanish financial system should prioritize strengthening and reshaping the industry, which will have to face near-term adjustments. A strong and solvent financial system will channel external financing and will help de-leverage sectors that are excessively in debt and with higher risk”
• "In the future, there will be greater regulatory requirements regarding capital, provisions, the leverage ratio, liquidity, and consumer protection. There will also be a greater level of supervision”
• BBVA’s strategy for tackling the challenges posed by the global economy and the transformation of the financial industry involves a customer-centric business model, a move towards a more advanced, efficient and productive distribution model  and a firm commitment to emerging markets
  

Today, BBVA’s President and COO, Ángel Cano, said in Bilbao that “the reform of the financial system must fully respect the competition framework”. Ángel Cano explained that “the financial system should prioritize strengthening and reshaping the industry, which will have to face near-term adjustments. A strong and solvent financial system will channel external financing and will help de-leverage sectors that are excessively in debt and with higher risk”. It is his judgment that in the future “there will be greater regulatory requirements regarding capital, provisions, the leverage ratio, liquidity, and consumer protection. There will also be a greater level of supervision,” he stressed.

During today’s visit to Bilbao, Ángel Cano met with  the region’s Finance Minister, Carlos Aguirre. He also attended several meetings with business people, shareholders and BBVA’s management team in the Basque Country. The visit to the capital of Vizcaya ended with him attending the BBVA Christmas Concert at the Guggenheim Museum, along with customers of the bank.

During the working brunch held today at the Bilbao Financial Club, the President and COO started off his speech by summarizing the causes and effects of the crisis. He then went on to focus on the current macroeconomic climate, indicating that “the global economic recovery has started, but is still affected by uncertainty and significant challenges have to be overcome in the future”.

Ángel Cano explained that “macroeconomic perspectives are very different from country to country, with lower growth in developed economies”. Both the United States and the European Monetary Union (EMU) have recorded positive quarter-on-quarter growth since the third quarter of 2009. In the long term, the EMU has a lower potential for growth than the US, Asia is experiencing sharp growth and is close to pre-crisis levels, Latin America is at an initial stage of growth and has very positive prospects for the future, although differences between countries continue to exist and Eastern Europe is also picking up, although it is starting from very low levels due to considerable accumulated downturns, and differences do exist between these nations.

With regard to Spain, BBVA’s President and COO stated that the shrinking of the economy is similar to that of the EMU, although it has a higher potential for growth (an average of 2% over the coming decade compared to 1.4% in the Euro Zone). Ángel Cano listed the challenges faced by the Spanish economy if it is to lift itself rapidly out of the current economic situation: the need to improve competitiveness in the goods and services markets, educational reform, the restructuring of the labor market, investment in R&D to boost productivity, the sustainable commitment to public accounts and the orderly and rapid restructuring of the financial sector.

Strong and solvent financial system

Ángel Cano discussed the current status of the global financial industry, which is characterized by adjustments and regulatory uncertainty. “The restructuring of the financial system must respect the competition framework”, he emphasized. In this regard, he referred to the principles by which this process must be guided:

•    Clear deadlines, with appropriate incentives and under the right conditions
•    Orderly mechanisms for withdrawing government aid
•    Reduction of excess capacity in the sector
•    Entities that are solvent and efficient on a standalone basis
•    Appropriate risk management in a universal banking model

“The Spanish financial system should prioritize strengthening and reshaping the industry, which will have to face near-term adjustments. A strong and solvent financial system will channel external financing and will help de-leverage sectors that are excessively in debt and with higher risk,” he said.

He then went on to describe the “five Rs” of this process: restructuring, recapitalization, reprivatization, resizing and regulation. He stressed that the first two are insufficient and vary from country to country. While the process is at a more advanced stage in the United States, Europe is more diverse, since each country is opting for a fragmented approach that is translating into lower levels of consolidation. He added that “once stability is achieved, reprivatizations will begin as states withdraw the capital invested in nationalized entities”.

It is his judgment that in the future “there will be greater regulatory requirements regarding capital, provisions, a simpler leverage ratio, liquidity and consumer protection. There will also be a greater level of supervision”. In the long term, he estimates that the challenge will be a lower rate of lending growth and lower levels of profitability, especially in developed countries. The President and COO also explained that other challenges exist such as risk aversion, changes in the business model, internationalization and the development of new technologies.

Focusing on Spain, he said that the financial industry would be streamlined to reduce existing excess capacity and fragmentation in the financial market. He also highlighted that the FROB (Fund for Ordered Bank Restructuring) will play a crucial role in merging entities to ensure they become more efficient in the medium term.

BBVA’s strategy

To conclude, Ángel Cano summarized BBVA’s strategy for tackling the challenges posed by the global economy and the transformation of the financial industry.

Firstly, a customer-centric business model. Secondly, an overhaul of the distribution model to achieve efficiency and profitability. Finally, a firm commitment to emerging economies, primarily in Latin America and Asia. All of which form part of a value proposition based on innovation and underpinned by technology.