The deputy chairman and chief executive of CaixaBank says that growing domestic market share is a top priority and has ruled out large foreign acquisitions amid growing shareholder pressure to deploy excess capital.
Speaking to Euromoney ahead of reporting first-quarter results on April 24, Juan María Nin reveals that he wants the bank’s share of the domestic retail banking market to grow to 20% over the next few years, a drive that is expected to form part of a new strategic plan to be announced in June.
|Juan María Nin, CEO of CaixaBank|
CaixaBank’s board will need to agree any new strategic plan first before Nin can move ahead in trying to capture a larger slice of retail deposits and loans, in each of which it now commands a 15% market share, ahead of BBVA on both counts and Santander on retail lending alone.
CaixaBank delivered strong growth in retail banking in the first quarter of 2014, with customer funds growing 2.1% (€5.4 billion) on a year earlier to €265 billion, supporting a 4.3% rise in gross income to €1.77 billion.
However, the bank reported net profit for the quarter of €152 million – down 54.6% on the first quarter of 2103 – because of what it said were “non-recurring items under various financial statement headings”.
CaixaBank’s strong income generation and profitability have supported its healthy capital position. At the end of March the bank reported a fully loaded Basle III common equity tier 1 ratio of 12.1%, exceeding the minimum regulatory limit of 7% by €7.4 billion. It has a leverage ratio of 5.5%, strong by European bank standards.
This, in turn, is drawing attention from the bank’s shareholders, to the point where they “are beginning to ask me what are we going to do with this excess capital,” says Nin.
In discussing the bank’s growth strategy, he says that he does see business opportunities outside the domestic market, but that Europe ultimately remains a “challenging environment” for deal making.
“However, I do see opportunity for greater cooperation between European banks in certain businesses,” he says.
On making acquisitions specifically, he adds that the bank “will not invest outside of Europe for the time being, unless the deals are very small acquisitions and made through our banking partners”.
CaixaBank has stakes in five banking institutions, including Boursorama (20.7%), Banco BPI (46.2%) and Erste Bank (9%) in Europe, Inbursa (9%) in Latin America and Bank of East Asia in China.
Although small acquisitions through these international partners are potentially on the table, Nin is more focused on domestic growth for now, whether that growth is purely organic or through other means.
Room for more consolidation
“The Spanish financial system has been restructured, recapitalized and de-leveraged and is in a better position today for this,” Nin says. “But the restructuring process is not over. It would be good to see the over-capacity in the financial system reduced further. There is room for more consolidation or mergers among banks, and I expect this to happen.”
Analysts agree and argue that Spain still has some way to go before consolidation is complete, not least because the state has yet to sell banks it nationalized in 2012, one such being CatalunyaCaixa.
This process might soon accelerate, however, given the tentative economic recovery Spain is enjoying. The economy grew 0.4% in the first three months of the year – the fastest rate in six years and double the increase that was recorded in the previous quarter.
However, growth remains fragile, and Nin says Spain still needs to address two big challenges: “public debt and unemployment”.
High public indebtedness relative to GDP is as much a general eurozone problem as it is a Spanish one. It might worsen in the coming years should the US economic recovery stay on track, leading to higher rates.
“Europe still needs structural reforms. Sovereign government debt remains a challenge,” says Nin. “Furthermore, there is a paradox here. In three or four years’ time when there is more momentum in the US economy, interest rates will move up. This, generally speaking, is good news for much of the world, but for European governments the paradox is that it will place a lot of pressure on them, a challenge in terms of servicing their debts.”
Analysts, for now, are pleased simply to see non-performing loans continue to decline at CaixaBank for the third quarter in a row in absolute terms, down €1.4 billion from the fourth quarter of 2013 to €24 billion. The ratio has also fallen for the first time, to 11.36%, down from 11.66% on the previous quarter.
“These results highlight the recovery of the sector,” note analysts at RBS, “margins are rising, profitability is improving, NPLs are stable or declining and provisions are lower.”