Spanish banks face next year with the focus of their daily management placed not only on the business, with an environment of falling interest rates, but also on capital, given the greater demands it faces.
In the middle of this month, the European Central Bank decided to slightly raise its capital requirements for Europe’s banks in 2025, after concluding the supervisory review and evaluation process (PRES). The increased demands arise from a worsening macroeconomic outlook and the presence of geopolitical risks.
The European banking supervisor stressed two weeks ago that the euro zone banking sector continued to show resilience in 2024, when entities maintained, on average, solid capital and liquidity positions well above regulatory requirements.
In the case of Spanish banking, The ECB has asked for more capital from five of the six listed banksbeing the only one whose Unicaja requirements have been lowered.
In aggregate terms, Santander will be the bank from which the most capital is required, with 13.93% of total capital. They are followed by Banco Sabadell (13.44%), BBVA (13.29%), CaixaBank (12.94%), Unicaja (12.65%) and Bankinter (11.88%).
A cushion of 3,750 million
Likewise, it must be taken into account that in the Spanish case the countercyclical capital buffer (CCA) will also be activated in the fourth quarter of next year. This cushion implies a surcharge of 0.5% on the minimum required capital.
For all Spanish banks (not just the listed ones), The additional cost of creating this cushion will be 3,750 million eurosaccording to the risk-weighted assets on banks’ balance sheets at the end of 2023.
In May, the Bank of Spain determined that the optimal level of CCA is 1%, but that it would activate it gradually to minimize its impact on banking. The 0.5% activated buffer will apply from October 1, 2025.
Subsequently, and conditional on cyclical systemic risks are maintained at a standard level, The CCA percentage is expected to be raised to 1% from the fourth quarter of 2025 (for application from October 1, 2026).
The construction of this cushion will allow it to be released in adverse cyclical phases, which would allow bank financing to be provided to the real economy at those times.
When the former governor of the Bank of Spain Pablo Hernández de Cos explained this measure in May, he noted that for this 1% cushion, banks will be able to use the profits of 2024, those of 2025 and those of 2026.
A 1% CCA level translates into between 0.4 and 0.5 percentage points of CET capital as a percentage of total risk-weighted assets. Each entity’s CCA will be calculated as a weighted average of the CCAs of all the jurisdictions in which they operate, with the weights being the relative risk-weighted assets of each jurisdiction.
Due to this way of calculating it, the impact of building this cushion will be greater in the banks that have the bulk of their business in Spain.
Increasing greater capital requirements in the face of risks is not something shared by the regulatory sector, despite being decisions of the ECB. In November, the president of the Financial Stability Institute (FSI), Fernando Restoy, called during a public intervention for a European supervisory framework that is tailored to each bank and not so focused on asking for more capital.
bank tax
Another element that will affect the banks’ capital is the payment of the new banking tax, which goes from applying a fixed 4.8% to a progressive rate that reaches 7% for entities whose interest and commission margin exceeds 5,000 million euros.
In this way, CaixaBank, BBVA and Santander will have a rate of 7% when registering income above 5,000 million euros, while Sabadell would be taxed at the rate of 6% and Bankinter and Unicaja would be in the range of 4.8%.
According to a report by BNP Paribas Exane, the design of this tax will mean a reduction in the tax bill that Banco Sabadell, Bankinter and Unicaja will have to pay, while it will increase that of the three most affected banks, BBVA, CaixaBank and Banco Santander.
During the process of processing the tax, the banking associations AEB and CECA rejected the tax, arguing that it would affect the country’s economic growth. Both business groups stated that this tax will reduce their ability to grant loans by 50 billion euros.
Banks are also expected to release capital through a type of operation called significant risk transfers (SRT), which have been gaining notoriety this year. With these operations, the bank maintains a loan portfolio on the balance sheet, while ceding part of the risk of non-payment to an investor.
This reduces the count of risk-weighted assets, so capital ratios rise as the instruments that qualify as capital for banks have a greater weight.
To this we must add that several entities have committed to their investors to return all capital above certain levels in the form of extraordinary remuneration (in cash or with share repurchases). It is the case of CaixaBank, which will return everything above 12.5%, from Banco Sabadellwhich will return anything that exceeds 13%; or BBVA, which will distribute what exceeds 12%. Santander is also considering distributing the excess capital at the end of 2025, although in its case it does not have a specific objective set.
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