The Bank of Spain believes that banks do not always inform their clients as well as they should when purchasing their products. The supervisor justifies that, among his functions, it is not only to guarantee that the entities have sufficient solvency, he also carries out what he calls “preventive supervision” which includes checking that “appropriate treatment is given to the clientele.”
In this action, it has found “weaknesses”, as broken down in the 2023 Supervision Report. “Some entities have not been providing all the pre-contractual information that they should provide,” supervisor sources explain in the presentation of the aforementioned report, without indicating. What entities are involved? “In some cases due to lack of preparation of the staff, in others, because they are brief in explanations” and “they do not give enough information to the client,” they add. He frames these criticisms in the “responsible banking” model, which “consists of providing adequate information to the client’s education and adapting to their needs,” which does not always happen.
“This lack of adaptation is a weakness,” argue the aforementioned sources. To try to change this type of deficiencies in dealing with clients, the Bank of Spain points out that “a series of actions will be proposed” so that “adequate documentation and information is provided.” Also, that “courses be held for employees” so that information is provided according to the needs of citizens so that they can make the correct decisions.
“The objective is to advance in strengthening the culture of the entities towards a responsible banking model, as a way of guaranteeing an adequate financial relationship between the entities and their clients,” he explains in the Supervision Report.
In this action, it ensures that it has carried out 153 supervisory actions, not only on customer treatment, but also on other issues, such as fraudulent operations with cards or digital channels or action with mortgage debtors without resources. These actions led to a sanctioning file, of which no details are given.
The supervisor also indicates that in the last year 11 files were processed, mostly for prudential issues, but also for transparency and client protection. In this case, most of the files are linked to appraisers, due to lack of internal control, governance problems and lack of resources, such as infrastructure or not having enough staff.
He also mentions the future figure of the Financial Client Defense Authority, about which he states he does not yet have an evaluation on how many personnel it will require and assumes that good coordination will be necessary between the Authority and the Bank of Spain, for example. when it comes to seeing where the claims go, so that the supervision of the conduct of the entities is effective.
Call for caution
In this Supervision Report, the governor of the Bank of Spain, Pablo Hernández de Cos, makes a “call for prudence.” It mentions the “significant growth in the profitability of Spanish banking entities”, after a year with record profits, in which they earned more than 26,000 million euros thanks to the rise in interest rates and in which they have also reinforced their policy of dividends as a way to reward its shareholders.
This growth in profitability, according to Hernández de Cos, “has allowed the sector as a whole to exceed its cost of capital. An increase in profitability that has only modestly translated into an increase in solvency.” For this reason, “from a medium-term perspective, it is necessary to call for caution on the part of entities, particularly in an environment in which, despite favorable economic growth prospects, important derived risks persist, above all, of global geopolitical tensions.”
In fact, the same report, when talking about the situation of the entities, states that “the impact of the pandemic has been overcome, with higher levels of profitability and solvency, but signs of a slowdown in financial activity are beginning to be observed that advise caution. ”.
“It would be desirable that, given the situation of uncertainty, entities take advantage of this temporary advantage and apply prudent policies in the planning and remuneration of their capital, as well as in the coverage of their credit risk,” the text indicates.
In this climate, faced with the prospect that with a drop in interest rates, entities will seek to provide more credit to maintain their profitability, the supervisor affirms that he is not going to “admit that there is a lowering of the requirements” and that they will be “tremendously vigilant” and will act if the conditions for granting credit are relaxed.
Slight uptick in delinquencies
In the final stretch of the year, it noted “slight increases in delinquencies in the consumer and mortgage segments,” but it does not see it with concern nor does it consider it to be, at least for the moment, a source of danger, given the prospect of a decline as well. of types.
In the last year, according to the breakdown, with the help of the European supervisor, a review of specific parts of the balance sheets of financial entities was carried out, including the granting of mortgages, among which were three Spanish entities, which did not mentions.
In this analysis, shared vulnerabilities were found in the granting of credits, such as the provision of adequate provisions or the valuation of loan collateral. And, the latter was not seen as a weakness in the case of Spanish entities.
