Macroeconomic and sector context

The Spanish economy continued in a fragile growth situation in 2011. This was the reflection of certain factors that, throughout the year, have affected the extent of the recovery progress. The Spanish economy is undergoing an ambitious fiscal consolidation plan, which achieved a noteworthy reduction of the deficit. In 2011, it stood at 8.2%, from the 11.1% reached in 2009. However, this has not prevented moments of high tension in the government debt markets throughout the year. To a certain extent, the Spanish government debt has been pressured by a contagion phenomenon following the uncertainty resulting from the approval of the second Greek rescue plan and, especially, as a consequence of the political crisis in Italy after the failure of the fiscal consolidation and reform plans presented by the former government. Only in the last part of the year , the interest rates of the Spanish public debt decreased, primarily due to the occasional interventions by the European Central Bank.

Moreover, the Spanish economy has been weighed down by the poor performance of a dysfunctional labor market and by the adjustment process in the real estate sector. This sector accelerated its fall in 2011 in terms of activity due to the uncertainty coming from tensions in the financial markets, among other reasons. In all, GDP growth in the year stood at 0.7%. However, some of these adjustments are continuing at a good rate. The funding needs of the Spanish economy continue to decrease, while there have been some very significant increases in competitiveness that have translated into steep rises in exports.

In this context, the Spanish financial entities have developed their commercial activity in a context of necessary and positive credit deleveraging process, liquidity tensions in the wholesale-funding markets, pressure on liability costs and deterioration of asset quality. In addition, the Spanish financial sector continues to be involved in a restructuring process whose most significant advances include the IPOs of Bankia, CaixaBank and Banca Cívica, the announcement of mergers between medium-sized banks (such as Popular and Pastor), interventions in several savings banks and the largest branch closure since the onset of the crisis (2,504 fewer in the first nine months of the year, the latest available data).

In this context of liquidity tensions, the Spanish banking system’s commercial networks have therefore continued to focus on attracting stable funds. In the last quarter there was a notable issuance of promissory notes to individuals and companies (over €40,000m). In the loan book, household lending fell by 2.75% (figure as of December 2011) since December 2010, with the new production of mortgages to individuals falling by 46.4% and consumer finance by 41.3%. Corporate deleveraging has been more notable, at 6.0% over the same time period. For the year as a whole, the volume of loans in the Spanish banking system has been curtailed by €68,414m. Demand for liability products was concentrated on deposits and new conservative options such as promissory notes, which have been the focus of almost all the new funds gathered, especially in the fourth quarter.