If the integration processes in which CaixaBank and Bankia, on the one hand, and Unicaja and Liberbank, on the other hand, come to fruition, the Spanish financial system will see another reduction in the number of active entities. It will have gone from almost 50 a decade ago to less than ten large banking groups distributed throughout the territory. Its power, measured in market share and physical presence, will be even more reinforced in each of the areas in which each bank has historically dominated. And faced with this new reality, the question that clients ask themselves is whether this degree of concentration will go against their interests as they have less choice or negotiation possibilities.
The banking system currently has a ‘moderate’ degree of concentration, according to the European scale measured by an index (the HHI): until the end of 2019 the market share of the five largest banks stood at 68.5%. And that IHH indicator exceeded a barrier (that of 1,000 points) by which it left behind the “low” concentration that it had until last year. The situation is different from that experienced by other European neighbors such as Germany, France or Italy, with much lower rates.
Ten years ago, after the bursting of the real estate bubble, the distribution of the market was more heterogeneous in each autonomous community. And now, the operations that are being prepared will only involve a reinforcement of each entity in its territory. There will be no major changes in the ‘rankings’: the new CaixaBank would be the first entity in Catalonia, a good part of the Valencian Community and Andalusia, Murcia, Madrid, Navarra, the Canary Islands, the Balearic Islands and part of Castilla y León. The future Unicaja-Liberbank would hold that position in areas of Andalusia (especially Malaga), part of Extremadura, Castilla La Mancha, Castilla y León and Asturias. Ibercaja, which is not immersed in mergers, will dominate Aragon and La Rioja, and areas of Extremadura and Castilla La Mancha. Kutxabank will do so in the Basque Country, as well as Córdoba, through Cajasur. Abanca throughout Galicia. And among the large banks, scattered throughout Spain but without major points of concentration, Banco Sabadell dominates Alicante and Banco Santander, Cantabria.
The one of all the life
Despite this notorious presence, the reality of each province reveals how in some areas that power is very high, while in other various entities they are almost on the heels of prominence. The latest report from the Bank of Spain revealed that the market share of the first entity in each province was very high in 2016 throughout Catalonia, Aragon, Burgos and Segovia, Huelva and Almería, Cáceres and Orense. These are the areas in which they accumulate the highest concentration indices. Joaquín Maudos, deputy director of the IVIE and professor at the University of Valencia, explains that in some provinces “the concentration indexes already exceed” the financial ratios considered as ‘highly concentrated’. “It is possible that depending on the merged entities, the increase in concentration is excessive,” says Maudos.
However, this expert highlights that, at the same time, the reality that the financial sector has been going through for several years does not imply that competition between banks can be resented in the face of the user. Quite the contrary. “This does not mean that the client will be harmed, since the alternative of having a banking sector with serious problems of low profitability is the worst of the alternatives,” says Joaquín Maudos. And he also points out that “if the mergers achieve synergies between entities that materialize in cost reductions, the increase in concentration should not be seen as high negative, but quite the opposite.”
This is also indicated by Juan Abellán, professor at the Institute of Stock Market Studies (IEB). It does not see competition problems because “it has been proven that it is a hypercompetitive sector.” And he gives an example, that of the resolution that forced the bank to assume most of the initial costs of the mortgage. “Then it was said that this was going to affect the client, and in the end what has happened is that not only has it not been the case, but now many banks already assume the cost of the appraisal, which they are not obliged to pay” by law.
Rural and technological gap
The digitization process in which the entire sector is immersed also explains how the relationship between the customer and the bank is no longer limited to that of the office below home, or the only branch that can remain open in a municipality. “The client perceives that they have many more options than they had before,” explains Francisco Uría, partner of Financial Services at KPMG. He argues that “the competitive behavior of banks has been encouraged in recent years because everyone has a profitability problem and competition is fierce” to seek more clients.
However, it is the less digitization of the older population sectors, or those groups that reside in rural areas, which may jeopardize their ability to negotiate with a single bank, which may see its presence strengthened after new mergers . Patricia Suárez, president of Asufin (Association of Financial Users), warns that “we must be careful with the financial and digital gap that the reduction of offices in our country implies and the risk it implies for the most unpopulated areas.”
To avoid conflicts, the National Commission of Markets and Competition (CNMC) will be one of the filters to adapt the mergers. Joaquín Maudos stresses that it is necessary for this body to “analyze the implications and, if they exceed certain thresholds of excessive market share in any market or product, impose the corresponding restrictions.”