Key performance indicators suggest that the Spanish banking industry remained resilient through the economic downturn in 2022, maintaining its efficiency after tackling the challenges posed by the COVID-19 pandemic.
Performance during the economic rollercoaster
The stricter regulations implemented in EU countries after the global financial crisis in 2008 helped the Spanish banking system cope with the economic impact of the pandemic. However, despite being better prepared, it recorded lower profitability in 2020 compared to previous years. The return on equity of the banking sector, for instance, plummeted in 2020, and the CET1 ratio also dropped sharply. The industry stabilized relatively quickly, exceeding even pre-pandemic stability indicators in 2021. Sadly, the banking industry did not have to wait long for another test, as 2022 began with yet another economic downturn.Despite the downturn, most indicators revealed a stable Spanish banking industry in 2022 and 2023. Bank assets reached a value of over four trillion euros, a size that nearly trebled the country’s GDP. Furthermore, the loan portfolio of banks remained stable, though the ratio of non-performing loans (NPL) increased slightly. The cost-to-income ratio of the banking industry increased slightly in early 2022 but decreased notably towards the end of the year, signaling a strengthening banking industry.
How do Spanish banks deal with the digital revolution?
Amid the economic rollercoaster in recent years, the Spanish banking system has not only weathered financial storms but has also witnessed the emergence of a prominent trend towards digital banking. The adoption of new banking methods, such as mobile and online banking, triggered a massive restructuring of the Spanish banking system. As more and more customers shift towards digital banking solutions, most banking operations are now conducted remotely. Hence, to meet their customers’ demand while reducing operating expenses, most credit institutions have implemented measures such as downsizing and branch closures. Between 2010 and 2023, the number of bank branches in Spain shrank by nearly 60 percent. Considering the increasing adoption of online banking, this downward trend in the number of bank branches will likely continue in the coming years.Overall, the Spanish banking system has demonstrated resilience and adaptability in navigating through economic challenges, showcasing stability even during economic decline. The transformative force reshaping the landscape of the banking industry lies in the emergence of online banking, marked by branch closures and declining employment as financial institutions adapt to meet evolving consumer preferences and technological advancements.
