For Spain, Battle Is at Home

In recent years, Spanish banks have kept an eye peeled on the international horizon. Their aim: to support their domestic customers with beachheads abroad.

But these days, Spain's bankers spend far more time poking around their own backyard. Financial deregulation at home has meant sharper competition. And other clouds loom in the planned unification of European Community financial markets in 1992 - a change experts said may hand foreign competitors more clout in the Spanish market.

In response, some of Spain's big banks have sought to maximize their leverage through mergers. Others have peeled out in a cost-cutting frenzy.

Concern About Margins

"The banks are obviously concerned with what's going to happen to their margins," said Charles Prescott, an analyst with IBCA Ltd. in London. "They're concentrating on the domestic side."

"Spain is fully banked and competition is already very intense," said Luis Javier Bastida, general manager of Banco Bilbao Vizcaya. "There's a lot of room for rationalizations."

Banco Bilbao Vizcaya - Spain's largest bank with $63.92 billion in assets - was formed in 1988 after the consolidation of Banco Bilbao and Banco Vizcaya.

Last year, Spanish banking authorities gave regional savings banks a green light to expand nationwide. That has thrown up a major challenge to banks.

Battle for Deposits

Moreover, in the wake of Banco Santander's decision to pay interest on current accounts, the banks have embarked on a cutthroat war for deposits. The goal is to build up a steady source of low-cost funding.

After 1992, Spain's banks will also have to contend with stiffer competition from foreign banks because of a European Community plan to eliminate national barriers to financial services. Under the plan, banks in the organization's member nations will be allowed unlimited branching in other E.C. countries.

Bracing for the expected shock, Spain's big banks have entered into a series of mergers.

In May, Banco Exterior de Espana, Instituto Oficial de Credito (ICO) and the Caja Postal post office savings bank said they planned to merge into the country's biggest banking institution, Corporacion Bancaria de Espana. The new concern would have $95 billion in assets, exceeding Banco Bilbao Vizcaya's by nearly 50% (see table on this page).

A few weeks later, Banco Central and Banco Hispano Americano announced they planned to merge into a slightly smaller entity with $90 billion in assets.

And last July, two of the country's biggest savings banks - Caja de Pensiones and Caja de Barcelona - merged to form Caja de Ahorros y Pensiones de Barcelona, currently No. 2 in the Spanish rankings.

Banco Santander, the only Spanish bank that has aggressively pursued expansion overseas, thus far has eschewed the coupling. Ditto for two smaller institutions, Banco Espanol de Credito and Banco Popular Espanol.

With profit margins under pressure, most Spanish banks have also have sought to slash costs and develop fee-based banking products.

Banco Bilbao Vizcaya, for example, has shut down 400 branches and severed 5,000 employees from the 35,000 employed by Banco Bilbao and Banco Vizcaya prior to their merger.

Analysts said other banks were likely to follow suit, axing thousands of jobs and hundreds of branches. But they add that this could take years.

Meanwhile, they added, institutions such as Santander and Banco Bilbao Vizcaya are moving aggressively to gain market share by introducing new products, such as interest-bearing checking accounts.

In the merger arena, Banco Bilbao's Mr. Bastida said he gets satisfaction in knowing that his bank got the jump on its Spanish competition.

"Everybody said mergers were difficult, there wasn't any need for them, and nobody believed it would work," says Mr. Bastida. "But our analysis has proved right."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.