The progress made in achieving banking union in Europe has reduced tensions
The general improvement in the conditions of financial markets mentioned above has had a clear impact on the banking sector throughout 2013.
In Europe the financial systems have strengthened their capital and liquidity overall. The progress made in the Single Supervisory Mechanism and, in general, in the consensus on banking union has reduced tension and also market fragmentation to some extent. On October 23, the ECB started the process of a comprehensive assessment of the balance sheets of the nearly 130 banks it will supervise from the second half of 2014. The results of this process will be of great importance in clearing doubts about the solvency of the European banking system, recovering investor confidence and quantifying the problems inherited from the crisis, which will have to be resolved at national level.
Spain has practically concluded its banking sector restructuring process
In Spain, the process of restructuring the financial system has been practically completed. Moreover, at the start of January 2014, the program of European financial assistance to the Spanish banks came to a close. All the banks that needed capital have been recapitalized, the assets linked to the real-estate sector have been transferred to the asset management company SAREB, a process for managing hybrid instruments has been implemented and the framework of governance, regulation and supervision in the sector has been reinforced. In addition, the aforementioned improvement in the financial markets has made it possible for Spanish banks to place issues in wholesale markets. Lastly, there has been a reduction in net liquidity demand from the ECB. At the close of December 2013 the amount borrowed was €202,000 million from a high of around €400,000 million in the summer of 2012.
The United States has steadily improved the health of its financial system
In the United States, the health of its financial system continued to improve throughout 2013, and the number of institutions with problems has fallen. Despite the low interest rates in the country, the profitability of banks has risen due to the reduced needs for provisions and higher non-financial income.
In Mexico the sector has continued strong
In Mexico the banking system remained strong throughout 2013, as highlighted by the Committee for the Stability of the Financial System (CESF) at its meeting held on September 30. In its statement it highlighted the strength of the Mexican financial system and the existence of clear, transparent and predictable policies. Particularly outstanding in 2013 was the initiative for financial reform launched in May by the Mexican government, and passed in November. It consists of 13 decrees making up a reform package that will improve the legal and regulatory framework based on the following four core thematic areas:
- A new mandate for development banks to boost the growth of the financial sector.
- Promotion of competitiveness in the banking and financial system to bring down fees and costs.
- Generation of additional incentives for the banks to increase lending.
- Strengthening of the financial and banking system to ensure sustained growth (improving prudential regulation).
The strength of the South American economies has had a positive impact on their financial systems
The banking industry also maintained its soundness in most of the countries of South America. Given the strength of the economies in the region, its financial systems have posted robust levels of profitability and moderate NPA ratios.
In Turkey, banks remain at good levels of capitalization and profitability, despite the recent toughening of monetary policy
In Turkey, the sector has maintained sound levels of capitalization and a high level of profitability, although the recent toughening of monetary policy measures may put downward pressure on the margins of banking institutions. The high level of exchange-rate volatility starting in the second half of the year, together with the need to maintain inflationary expectations anchored, have led to an increase in the interest rate corridor. This has led to a significant rise in the average cost of finance, which at the end of 2013 stood at 6.4%. At the end of the year, credit also appeared to moderate its rate of year-on-year growth. However, the sector’s asset quality does not seem to be worsening and the NPA ratio remained low.
Profits in the Chinese banking sector are still rising at double-digit rates
With respect to the Chinese banking sector, the rate of growth in profits slowed in 2013, although it is still high (up 13.6% for listed banks, according to the latest figures available as of June 2013). This is basically due to the increase in income from fees and commissions, as the steady liberalization of interest rates has had a negative impact on net interest income, above all on the smallest banks, which have risen the remuneration on deposits to attract liquidity. The Chinese policies are expected to remain unchanged, although with a slight adjustment to slow loan growth and reduce existing financial fragility.
