• The ranking of "The Pulse of Spanish Banking" by  Alvarez & Marsal is headed by Bankinter, followed by Kutxabank and BBVA, while Bankinter, BBVA and Santander are the banks that improve their score the most
• In 2021, the profitability of Spanish banks as a whole improved significantly due to the lower pace of provisions and the improvement caused by efficiency initiatives
• The cost of risk in the industry returns to pre-pandemic levels and the average solvency continues at the highest values of the last five years

Madrid – March 28, 2022 – Global professional services firm Alvarez & Marsal ("A&M") today announced the results of the fifteenth edition of its prestigious report "The Pulse of Spanish Banking". This study analyzes the evolution of the ten main Spanish banks in terms of growth, liquidity, efficiency, risk, profitability and solvency throughout 2021, highlighting the key performance indicators of the Spanish banking industry and scoring them according to the KPIs related to each area of analysis. This year's ranking is headed by Bankinter, followed by Kutxabank and BBVA, while Bankinter, BBVA and Santander are the banks that improve their score the most.

The report shows that, during 2021, the profitability of Spanish banks as a whole improved significantly due to the lower pace of provisions and the improvement caused by efficiency initiatives. In this sense, the return on equity (RoE) doubled its level compared to the previous year, to 7.15%, reaching levels very similar to those of 2019 and 2018.

The cost of risk in the industry returns  to pre-pandemic values, standing at 46 basis points (well below the 84 basis points of 2020, marked by Covid 19 provisions) and maintaining coverage levels above 63% in anticipation of the evolution of ICO credits. On the other hand, the average solvency of the industry continues at the maximum values of the last five years, presenting a fully loaded CET1 of 12.8%, with the return to normality of the dividend distribution capacity. In any case, Spanish banks are still far from the solvency levels of the European Union – which stands at 15.7% – although Alvarez & Marsal estimates that there will be a downward convergence between European and Spanish levels due to the new capital rules in Basel. 

Topline of the income statement, the A&M analysis shows that the sector's net interest income (NIM) has continued to fall to reach a historic low of 1.02%, although it is foreseeable that, during 2022, there will be a turning point due to the possible rise in rates at the end of the year. The pivot of the Spanish banks towards fee driven businesses has delivered positive results, causing the fees to go from 30% of the income of the sector (5 years ago) to the 37% they represent today. This has boosted core revenues to €32.8 billon (€1.3 billon more than 5 years ago). In addition, the report states that the banks with the greatest capacity to generate total revenues on assets in 2021 were Sabadell, Santander and Bankinter. 

The level of efficiency of the industry is among the best in Europe – below 55% – as a result of the closures of offices and reduction of structure carried out in recent years. The sector ended 2021 with 24% fewer offices and 8% fewer FTEs compared to the end of 2019, with part of the savings pending to crystallize in results during 2022. Even so, the banks remain above the 45% efficiency  target, which would provide returns on capital that would return the banks' valuations to levels above book value.

Similarly, Alvarez & Marsal observes upward levels in productivity per branch of all entities, highlighting Santander as the bank that has improved this indicator the  most due to the office closures carried out by the entity. In addition, Bankinter and Santander are the banks with the highest productivity per branch. In any case, the consultant recalls that the race towards digitalization is causing the need not to leave customers or vulnerable clients unattended.

For its part, the NPL ratio has continued the downward trend of recent periods to below 4%, thanks to the decrease in non-performing loans. Coverage has increased to levels of 63.2% due to the prudent decision not to release the provisions provided in 2020 due to the pandemic. Compared to the European average (2.1%), the  Spanish NPL ratio remains high and the entities with the highest level of NPLs continue to be Santander and Cajamar.

With regard to the digitalization of Spanish banking, Alvarez & Marsal has developed an innovative score that measures quantitative elements and user perception of each entity. According to this ranking, BBVA and Santander are the banks with the best digital score among the five large entities, while Abanca and Cajamar are the most outstanding in the group of five medium-sized banks. 

Regarding sustainability, the consultancy has combined the analysis of the rating agencies with the vision of the users obtained from a survey carried out to a representative sample of clients of each entity with the collaboration of BXG-the Brand Experience Group. From this study it can be deduced that the entities with the best combined perception of both groups are Bankinter, CaixaBank and Santander. 

Finally, with regard to the crisis caused by the war in Ukraine and the escalation of global prices, Alvarez & Marsal has carried out an analysis of impacts in stress scenarios. Thus, the consultancy has concluded that there is a potential 10% exposure of the Spanish banking sector that could be affected in case of a total disconnection of exports and imports together with a rise in the price of energy and raw materials of 200% continuously.

According to Fernando de la Mora, Managing Director and Head of Alvarez & Marsal Spain and Portugal: "Spanish banks have recovered in 2021 the levels of profitability, solvency and cost of risk existing prior to the pandemic.  Although 2022 was seen as a year of optimism for revenues,  efficiency and risk, the conflict between Ukraine and Russia is generating new uncertainties about the economic recovery and the future progress of the sector.  With this edition of "Spanish Banking Pulse" we have tried to give indications and point out where the most important impacts may come from. We are also very excited about the incorporation of new digital and sustainability rankings in our report, which we hope will serve to provide objectivity and comparison in the  most important challenges of the sector."

Key trends in 2021

• In 2021, loans increased by 0.1%, and deposits by 5.2%.2%. Market share changes have been intense in the area of credit and investment funds.
• Of the ten entities analyzed, seven have seen their levels of structural liquidity (loan to deposits) improved. In any case, the liquidity of the industry remains in a very favorable situation, with a ratio of loans to deposits of 85.3%. Spanish banking has a better level than Europe  (108%)
• The industry's net interest income (NIM) has remained lower, standing at 1.02 at the end of 2021. The decrease in margin has been widespread throughout the industry with the exception of Cajamar, which has managed to maintain the margin. Spanish banking is at worse levels than Europe (1.24)
• Total revenue from margin and commission income has increased by 2.0% compared to 2020, due to the commission business that has offset interest margin declines.
• Industry operating expenses decreased by 2.0%. This improvement has caused  the industry's efficiency ratio to improve to levels of 54.7%. The most efficient entities are Bankinter and Santander and the ones that have the most experience of improvement BCC and Abanca.
• In terms of turnover per branch, Santander and Bankinter stand out as the most productive entities, while Ibercaja and Cajamar obtain the worst results. Productivity improves due to the reduction of branches where Santander and Sabadell stand out as the ones that have reduced more branches proportionally to their structure.
• Continuing with the trend of recent periods, the NPL ratio of all Spanish entities analyzed decreased during 2021, standing for the first time in more than 5 years below 4%. This decrease is due to the reduction in non-performing loans, and the increase in total loans to customers. Additionally, coverage stands at 63%. The entities with the lowest levels of NPL are Abanca, Ibercaja and Bankinter and the entities with the highest levels of coverage are Kutzabank, Abanca and Cajamar. Spanish banks are at worse levels than European banks in terms of the NPL ratio (2.10).
• The industry's cost of risk stood at 0.46% at the end of the year, similar levels at the end of 2019. Cajamar and Sabadell are the entities with the highest cost of risk during the year and Abanca and Kutxabank are the ones with the lowest cost of risk in 2021. Spanish banks are at similar  levels of cost of risk as European banks (0. 47%)
• With respect to the return on equity, there is a growth in ROE (Return on Equity) due to the decrease in the cost of risk and  the management of efficiency, reaching a 7.1%. During the year, the ROE of all entities except Unicaja has increased, with Bankinter experiencing a more significant increase due to the capital gains from the divestment of its insurance business. Spanish banks have better levels of profitability than European banks (7.6%)
• The solvency of spanish banks as a whole remains at a fully loaded CET1 ratio of 12.8% during the period analysed. Four banks improve this indicator, with Kutxabank being  the bank with the highest level of 17.3%, while the rest of the entities are below 13%. Spanish banks have worse solvency levels than European banks (15.7%)

A&M The Pulse of Spanish Banking

The Pulse of Spanish Banking is a quarterly report that examines the 10 largest Spanish banks ("top 10") in terms of their activities within Spain, and in which the main performance indicators of the Spanish banking sector are highlighted. The Spanish Banking Pulse's goal is to help the banking sector and board members stay abreast of industry trends.

All data used in this report have been obtained from public sources. Spanish Banking Pulse will be available on the website of A&M Spain www.alvarezandmarsal.com/es/global-locations/spain.

What we analyze: the 10 largest banks in Spain in their business in our country
CaixaBank, BBVA, Santander, Sabadell, Bankinter, Abanca, Unicaja, Kutxabank, Ibercaja and BCC.

About Alvarez & Marsal

Companies, investors and government entities around the world turn to Alvarez & Marsal (A&M) for leadership, action and results. Private since its founding in 1983, A&M is a leading global professional services company providing advisory services, business performance improvement and recovery management. When conventional approaches are not enough to create transformation and drive change, clients turn to our extensive experience and ability to offer practical solutions to their particular needs. 

With more than 6,000 people on four continents, we deliver tangible results for companies, boards, private equity firms, law firms and government bodies facing complex challenges. Our senior leaders and their teams leverage A&M's restructuring heritage to help companies act decisively, drive their growth and accelerate their bottom line. We are experienced operators, world-class consultants, former regulators and industry authorities with a shared commitment to telling clients what it really takes to become a strategic business asset, manage risk and leverage value at every stage of growth.