Coronavirus: Spanish banks find a practical way to work with the state

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By:
Dominic O’Neill
Published on:

The country’s biggest firms are doing all they can to bolster their reputation, as the nation faces a human and economic crisis brought on by Covid-19.

BBVA-coronavirus-masks-boxes-780.jpgBBVA, among others, is providing the Spanish health ministry with essential equipment to help fight Covid-19


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Only a few months ago, Spain’s top bankers were muttering darkly about how new bank taxes under the incoming left-wing government would make credit pricier and scarcer, and  exacerbate wider economic mismanagement.

They were all the more worried because both coalition partners – the centre-left socialist party, which controls the finance ministry, and the far-left Podemos party – had advocated harsher fiscal treatment of the banks in campaigning before elections last November.

Earlier this year, the government went ahead with plans for a new financial transactions tax.

Even now, Spanish banks know they’re not going to be the heroes of the coronavirus crisis, but they are trying convince the government and the public that, this time at least, they will need less prompting to take their responsibilities seriously as some the eurozone’s biggest and most profitable financial institutions, in one of its financially weakest states.

Part of that has meant putting aside their own rivalries to coordinate their responses.

Equally, as the virus hit Spain hard in the early spring, the government has had to recognise and protect the relationship between the economy, especially the business sector, and the banks.

Common objectives

“One of the few good things in this situation is that everyone has become very practical in working towards the common objective of saving lives and supporting the economy,” says Victor Matarranz, Santander’s global head of wealth management and insurance, now charged with leading the group’s response to the coronavirus crisis.

On March 17, in addition to tax relief for small and medium-sized enterprises, centre-left prime minister Pedro Sánchez announced a €100 billion programme of new state-guaranteed loans to help businesses manage lost revenues, as part of what is overall perhaps the state’s biggest fiscal mobilization in its democratic history.


We’re making sure that we have plenty of liquidity to lend to these businesses, as well as the operational capacity to do it quickly 
 - Jordi Gual, CaixaBank

In fact, €100 billion is less than similar schemes that other big western European states have launched, even as a proportion of the economy.

Yet the week before Sánchez’ announcement, Spanish banks promised domestic SMEs and self-employed people tens of billions of euros of additional working-capital loans at their own risk, something very few big banks elsewhere in Europe have done.

After Santander announced €20 billion of such support, BBVA and CaixaBank both followed with €25 billion.

In total, Spanish banks have effectively matched the government’s €100 billion package, bringing total liquidity assistance for Spanish businesses to about €200 billion, says José María Roldán, chairman of the AEB, biggest of the three banking associations involved in coordinating liquidity measures.

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José María Roldán, chairman of the AEB


“This is fresh funding; it’s not repackaging existing credit lines,” says Roldán, of the banks’ programmes. “The government is supplementing, not substituting, what the private-sector banks are doing.”

Jordi Gual, chairman of CaixaBank, adds that these pre-approved liquidity schemes got up and running three weeks before the government-guaranteed programme, helping counter what was an immediate hit to businesses’ top line.

“We’re making sure that we have plenty of liquidity to lend to these businesses, as well as the operational capacity to do it quickly,” he says.

For example, the minimum loan size requiring a notary is now higher.

Facing complaints

As elsewhere in Europe, the banks’ part in the government’s programme has come under fire.

After it emerged that some banks were tying applications for state-guaranteed loans to purchases of their ancillary products, such as life insurance, Bank of Spain said in early April it was monitoring compliance with the terms of the guarantees, which specifically forbid such conditions.

At the same time, the banks faced complaints that they weren’t abiding by a government-enforced three-month mortgage moratorium for people made financially vulnerable as a result of the crisis.


What the health ministry really appreciated, more than just the money, was making it happen, by taking care of the logistics, payments and delivery 
 - Antoni Ballabriga, BBVA

On the topic of the moratorium, however, banks have answered such criticism by saying they will go even further than the requirement by offering stops on the repayment of principal for 12 months on mortgages and six months on consumer loans.

As Gual notes, these steps are not always simple examples of doing well by doing good: “In the case of lending, it helps our business. In the case of the moratorium, we are doing the right thing to show solidarity in this period of hardship.”

In collaboration with the state, the banks have also agreed to advance unemployment benefit by three weeks.

These promises of extra liquidity to households and businesses are not the only way in which banks are trying to help the government and society at large.

Corporate responses

As it became clear Spain would be the next country to be hard-hit by the virus, its biggest corporations – including BBVA and Santander, energy company Iberdrola and telecoms firm Telefonica – moved quickly to help the health ministry get more of the equipment it needed, especially masks, ventilators and testing kits.

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Including an initial €25 million each from Santander and BBVA, a handful of big corporates put their own money forward, to the tune of €150 million in late March. That brought the state thousands more ventilators and hospital beds, and millions more masks, just as the prices of such equipment rose by up to five times.

Sourcing the equipment was not easy, especially as quickly as the health services needed it, so these firms mobilised their own supplier and contact networks, especially in China, the only place where the equipment was available.

At Santander, that effort involved both its Chinese branch and in-house procurement company, Aquanima.

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Victor Matarranz,
Santander

“The market was in shock; everyone was trying to do the same thing,” says Matarranz.

Even after the bank thought it had secured an order, sometimes another party would offer more and take the purchase.

“We’ve seen many orders like that disappear,” Matarranz says.

The key was to pool resources and liaise closely with the government.

Inditex – the Spain-based owner of clothing retailer Zara – even provided its cargo planes to transport medical equipment that it and other companies had purchased.

“What the health ministry really appreciated, more than just the money, was making it happen, by taking care of the logistics, payments and delivery,” says Antoni Ballabriga, BBVA’s global head of responsible banking.

Remuneration

The symbolism of the banks’ efforts has been important.

Santander’s donation was largely funded by a 50% cut in the combined pay and bonuses of executive chairman Ana Botín and chief executive José Antonio Álvarez, and a 20% cut in the rest of the board’s pay.

BBVA has opted not to pay bonus to any of its senior management at global and local level, affecting about 300 people and implying savings of about €50 million.

Gonzalo Gortázar, chief executive of CaixaBank – whose La Caixa foundation has also turned more of its resources to local medical needs – has renounced his 2020 bonus.