The vice president of the European Central Bank has called for further consolidation by eurozone banks to improve lenders’ profitability during the Covid-19 crisis.
Banks in Spain and other EU countries have come under pressure to consolidate as the sector faces rising bad loans and rock bottom interest rates due to the coronavirus pandemic.
“Removing cost excesses, over-capacity is more necessary than it was before the pandemic,” the ECB’s Luis de Guindos told an event hosted by newspaper Expansion and accountancy giant KPMG.
“Consolidation is a tool, it is not a goal in itself, but can be helpful in cost savings, in removing over-capacity,” he added.
More flexibility from the ECB on capital requirements could pave the way for more consolidation among banks in the bloc.
Last month Spanish lenders Caixabank and Bankia announced a merger that’s set to Spain’s largest domestic bank.
News of the tie-up has fuelled expectations of a new wave of consolidation in the country’s banking sector. The number of banks in Spain has already fallen from 55 to 12 since the 2008 financial crisis.
Speaking today, de Guindos said eurozone banks’ return on capital (ROE) — a key measure of profitability — had declined to around two per cent due to the pandemic, which has led to higher provisions for bad loans and lower revenues.
Before Covid-19 hit, the measure had stood around five per cent, the central banker said.
De Guindos also told the event that any withdrawal stimulus measures introduced to boost European economies should be done gradually and in a calibrated manner.