The improvement of their profit margins, still at historic lows, is one of the main challenges posed to the Spanish banks in 2019, according to ratings agency Standard & Poors (S&P).

Looking forward, S&P predicts more mergers among medium sized Spanish banksthis year, given the low profit margins that the sector is suffering, and that most are trading in the stock market below their book value. S&P believes that Spanish banks are well positioned, with sanitised balance sheets and favourable perspectives in terms of credit quality. However, the agency points out in its report that, after years of rating upgrades for Spanish banks, which have put them «very close to the levels of December 2011, and even before the crisis», 2019 could also see some downgrades. The agency predicts that in 2019 toxic assets on the balance sheets will continue to be reduced and that the main challenge will remain improving profit margins which remain at historic lows. In fact it is this low profitability which will drive consolidation this year which will help achieve synergies, economies of scale and cost cutting.

At the European level, S&P believe it is very unlikely that there will major cross-border mergers this year, despite the political interest in Europe that there should be. The report signals that «Banking Union is still not complete and the execution risks are greater than in domestic consolidation, where it is easier to find synergies».

Finally, S&P rules out 2019 being the year in which the State gets out of Bankia, where it controls 61.4% of the capital. Rather it predicts a «very gradual» process of withdrawal.

Original Story: The Corner
Photo: FreeImages.com /Xexo Xeperti
Edition:Prime Yield