The interest margin grows 2,7% despite the low interest rate environment in Europe. This is the common denominator in the actions of the banks during the first tranche of this year. Where it is also evident that the granting of credits has decreased in this period by financial entities. To the point of decreasing its demand by several percentage points compared to the previous year. In a general environment in which interest rates have fallen as a result of the cheaper price of money in the euro zone.
For the first time in history the interest rate in the euro zone it is located at 0%. In other words, it has no value and this is reflected in the business results of financial entities that have decreased their intermediation margins. Because its earnings for this concept have suffered significantly. Playing against its positioning in the equity markets. Beyond other considerations of a technical nature and perhaps also from the point of view of its fundamentals.
While on the other hand, fixed-term bank deposits have also been reduced by their low profitability as a result of the cheaper price of money. According to the latest data from the Bank of Spain, an average 12-month deposit in its term of permanence currently has an interest rate of 0,13% approximately. One of the lowest in recent years and that has caused a good part of small and medium investors to have opted for other investment and saving models. For example, mutual funds and in some cases, the purchase and sale of shares on the stock market.
Banks: deposits with less interest
One of the characteristics of this financial product in recent years is its significant drop in the interest applied by banks. Where it is very difficult to exceed the level of 0,60% for depositing the money through this banking model. This has caused savings to be diverted to other more profitable models. Although they involve more risks in the contracting conditions as no fixed return is guaranteed every year. Within a general context in which stimuli prevail in the subscription of this class of financial products, both fixed and variable income.
While on the other hand, it must also be emphasized that other products are emerging that are more stimulating to safeguard savings in a certainly difficult environment for equity markets. Where there are options in which profitability can be improved, but at the cost of assuming more risks in contracting these financial products. Not surprisingly, there are already few products considered 100% safe, as was the case with fixed-term bank deposits. And this fact is affecting the business results of credit institutions.
Credits cheaper than before
Another aspect that is influencing the positioning of banking entities is the lower benefit they are obtaining from the granting of their loans. In any of its modalities and formats: consumer, personal, mortgage or even through those issued through credit cards. To the point that the price of their shares have been affected by this scenario presented by banks as a result of the cheaper price of money. Where the average interest rate that they are currently applying is located in a range that goes from 6% to 8%. Several percentage points lower than a few years ago, before the economic crisis began.
While on the other hand, it also affects that commissions and other expenses in its management or maintenance have been significantly reduced compared to other more expansive periods from a monetary point of view. Just as there has been a notable upturn in demand, although in recent months this trend has changed in the habits of banking users, as can be seen from the latest data provided by the banking sector. In a very complicated environment that offers many doubts to small and medium investors who have taken positions in some of the securities of this important sector within national equities.
Hiring of other products
Another direct consequence of this change in banking customers' habits is the fact that investment funds have rebounded in recent months. Because in effect, according to the Association of Collective Investment Institutions and Pension Funds (Inverco) it shows that in the midst of the high uncertainty which conditioned the behavior of the markets, the Investment Funds reduced their assets in May by 4.500 million euros (1,7% less than the previous month), standing at 264.492 million euros, slightly more than 6.977 million euros above at the end of 2018 (2,7% more than last December).
This decline in equity was entirely due to the poor performance of the markets, since net subscriptions amounting to 414 million euros were recorded in the period. Affected, both to equity investment funds and those from fixed income. As from the alternative formats, such as monetary, real estate or even based on raw materials. Although this year's balance is clearly positive for the participants of this financial product.
Buy shares on the stock market
The most aggressive small and medium investors always have the recourse to opt for the buying and selling shares in equity financial markets. In a very complicated year but at the moment it is paying off on the positive side. It is a risk that must be assumed to improve the profitability of your savings in the face of weak returns in fixed income and banking products (deposits, promissory notes or bonds). Being another of the sources of profit on the part of the credit institutions for the commissions and expenses that their hiring entails.
Although it is increasingly complex to make profitable operations in the shortest term due to the volatility emerging in the equity markets. Where it is very difficult to maintain several consecutive days of steep climbs. Although they distribute dividends among its shareholders with an average profitability that is close to 5%. In any case, higher than that offered by savings products that barely exceed 1% levels. In a general context in which it is increasingly difficult to ensure a minimum return on the money invested. And that is leading bank users to request investment models that are newly created.
Granting of credits
The consolidated balance sheet of Spanish banking groups exceeded 31 trillion euros as of March 2019, 2,6, with a growth of 3,2% year-on-year supported significantly by the increase in the headings representative of the typical activity of retail commercial banking. Both customer loans and deposits grew by more than 5%, while the balance of debt securities issued increased by 9% year-on-year.
Customer credit, on the other hand, reached 1,6 trillion euros until March, which represents 5,2% more in the interannual rate and represents almost 60% of the total assets on the balance sheet. The NPL ratio was slightly below 4% after a reduction of more than half a percentage point compared to the rate of a year earlier, with a coverage level equivalent to 67,4% of doubtful assets, compared to 68,7, XNUMX% from the previous year.
Deposits grow more than 5%
Customer deposits stood at over 1,4 trillion euros, 5,5% more than in March 2018, with which already represent more than 55% of the total balance sheet and they allow maintaining the ratio of loans to deposits at 108%. On the other hand, the balance of securities other than shares issued has increased by 30.000 million euros, 9,3% during the last twelve months, to a volume of more than 350.000 million euros.
On the contrary, the net financing raised from central banks and credit institutions it has been reduced to a net balance of 13.000 million euros, barely 0,5% of the total balance, with an annual decrease of 35.000 million euros. As of March 31, 2019, net worth amounted to 192.000 million euros, with an annual increase of 1,7%. Expressed in terms of the solvency ratio, the highest quality capital ratio CET1 fully loaded it stood at 11,3%, which is 20 basis points more than a year earlier.
Customer credit, on the other hand, reached 1,6 trillion euros until March, which represents 5,2% more in the interannual rate and represents almost 60% of the total assets on the balance sheet. The NPL ratio was slightly below 4% after a reduction of more than half a percentage point compared to the rate of a year earlier, with a coverage level equivalent to 67,4% of doubtful assets, compared to 68,7, XNUMX% from the previous year.