Spanish banks: Income quality remains a challenge in 2015

While 2014 was more positive than 2013, the fact is that securing quality income remains a challenge. In general, the results of the sector in 2014 were characterised by a recovery in net interest income, due to an expansion in the range of customers and improved efficiency. Also, a trend which showed a steady decline in delinquencies and a reinforcement in capital ratios aided performance.

Looking ahead to 2015, we expect the recovery of income to continue owing to the following factors: improving credit quality (reduction of the risk premium), the control of recurring costs and increased net income on interest (although at rates more moderate than in 20104/2013) by adjusting the cost of liability in both wholesale and retail sectors.

We are also likely to see a change of strategy in the sector, as solvency issues cease to be the main concern thanks to a high level of excess capital. Instead, attention will focus on corporate movements that allow greater diversification either from a geographical or business strategy perspectives. Some operations will involve, depending on their size, capital consumption in the short-term and the also the risk of capital increases.

In terms of dividend policy, listed banks will perform a gradual shift towards reducing scrip dividend in favor of cash dividend to shareholders, except for Santander, which has already altered is compensation system.