The greater demand of capital to the boxes will strangle the credit

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The greater demands of capital to the bank that the Government plans to approve next Friday will accentuate the current credit restrictions that occur in Spain. This is seen by the entities affected, by the experts consulted and even by the Bank of Spain , one of the driving forces behind the forthcoming reform. According to Elena Salgado , Minister of Economy, the so-called plan for the Strengthening of the Financial Sector aims to restore confidence in the sector and ensure that credit flows back to the real economy.

These two arguments constitute the exposition of motives that Salgado threw away at the press conference on January 24, when he announced the plan, and the letter he sent to the presidents of the ECSC and the AEB on February 9. But the flow of credit will not occur, at least in the short and medium term.

In the Financial Stability Review last November, the Bank of Spain openly recognizes this: “Given that capital is a relatively expensive form of financing for financial institutions and liquid assets are not very profitable, a tightening of capital requirements will mean an additional burden for them and will have a negative effect on the supply of credit in the economy. “

Economic impact

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In another point of the document, entitled “Economic impact of the reinforcement of capital requirements”, it is warned that “in the short term, while the process of adjustment to the new regulatory scenario occurs, this adverse effect could be more intense, which would be especially harmful in the current economic context due to a still very fragile recovery of the activity “.

Credit began to decelerate in 2007 after years of very strong growth and today it continues at negative or practically flat levels, especially for families and businesses. Only the end of the deductions for certain groups for the purchase of housing, which stopped at the end of 2010, encouraged a bit the granting of loans in the last stretch of last year.

On the other hand, the increase in liabilities – the financing of banking in the market is skyrocketing, and the war over liabilities in 2010 did a lot of damage to the entities – it has moved quickly to the new loans, with differentials prohibitive and an increase in the guarantees requested by banks and savings banks. SMEs complain that the ICO (public) lines do not work and that banking continues with the tap closed.

Now, the situation can get worse. All banks and savings banks must have a minimum capital of 8% on the assets at risk, that is, the loans. And the boxes that do not have 20% of the capital in private hands should raise that ratio to 10%. That will complicate things. “The way to comply with the new parameters will be twofold: on the one hand, by new contributions of capital, who can and wants to do it (in the case of banks, dilutes shareholders and reduces earnings per share); on the other hand, reducing credit by not renewing the policies or, simply, not allocating the amortization money to new loans, “explains Rubén Manso, consultant at Mansolivar & IAX.

The PP and CiU, which do not see clearly the suitability or the way in which the Government is carrying out the new financial regulation, have also denounced the brake that can occur in the recovery if the demands on banks are excessively increased. And now, says Álvaro Nadal, deputy spokesman for the Popular Party’s economy, “what is needed is that there is more credit, because if that is the case, there will be more economic activity, more investment and more employment.”

Finally, the unions have united against the reform with similar arguments. They demand that competition be not distorted by the requirement of different capital requirements for banks and savings banks and that the emphasis be placed on “the need to delay the reactivation of credit for individuals and SMEs”.

 César Pérez, head of strategy for Europe at JP Morgan, believes that it was not the most successful that the first wave of recapitalization of savings banks was made with public loans from the FROB at 7.7%. “It’s better to do it with capital, because if you do not pay a lot of interest, it makes it harder for credit to flow,” says Pérez, who recently participated in a conference at Esade. The expert from JP Morgan believes that with the government’s entry into the capital and the transformation of the cashier into a bank, there is greater confidence in that entity overseas, while the costs are reduced, since interest is not payable . César Pérez recalls that at the beginning of the crisis in 2007, the United States Government gave money to all the major entities in the country to recapitalize (whether they needed it or not), to give confidence.

Precisely Perez believes that on an international scale what is most worrying about Spain is the situation of banks, especially due to the maturities this year and that can exceed 70,000 million euros.

For the analyst, the crisis has changed the way in which the investor decides their investment policies. “The market has identified two Europes,” he says. “On the one hand, Germany, with a lower unemployment than before the crisis, and on the other, the periphery.” The recommendation is to invest in equities through the German stock exchange.