Banking Matters: Spain’s banking sector prospers from focus on efficiency
On a warm spring day in Madrid, José María Suárez, director of bank Banesto’s branch in the Barrio de Salamanca, an upscale neighborhood, looked through his client base on the computer.
One customer had a Spanish Treasury bond coming due and the bank was going to contact him to suggest how he could reinvest the funds — and to try to persuade him to have more of his direct debits channeled through the bank. With only his monthly electricity bill going through his account, his ties to the bank were not perceived as strong enough.
Another client was, in Spanish banker lingo, strongly “linked” to the bank: Nine of his 10 financial needs, ranging from a checking account to a pension fund to credit cards, were covered by the bank. This 48-year- old star client, one of seven customer segments, had €508,000, or $676,000, in assets. His behavioral patterns are apparent from his credit card spending, divided into categories from toys to restaurants and travel.
That amount of information on the back of superb technology is one of the reasons Spanish banks are among the most efficient commercial banks in the world. The average cost/income ratio, known as the efficiency ratio in the United States, for Spain’s three largest quoted banks — Grupo Santander (which owns Banesto), BBVA and Banco Popular Español — was 43 percent in 2006, according to data from The Banker.
That compares with more than 58 percent for Citigroup, Wells Fargo and Wachovia, three of America’s largest banks. The lower the ratio, the better, as it costs less to produce the income.
Some of the explanations for this are unique to the Spanish market. But there are also strategies that banks all over the world could follow.
Historically, the Spanish banking market was very fragmented, but a banking crisis that began in the second half of the 1970s led to the emergence of a restructured sector, which then began consolidating.
The banks also laid off a lot of extra workers, using profits from sales of their substantial stakes in Spanish industrial companies to finance severance packages, said Jesús Martínez, a director at Standard & Poor’s in Madrid.
By investing heavily in state-of- the-art technology as well, Spanish banks today “need many fewer people despite the fact of the increase in their business,” Martínez said.
Spain’s gross domestic product has been growing on average around 3 percent a year from 1994 to 2005 and at nearly 4 percent in 2006, leading to a huge demand for financial products.
Meanwhile, strong competition has also played a major role in increasing efficiency. The entry of foreign banks in the mid-1970s, as well as the presence of cajas, or savings banks, kept and continues to keep the domestic commercial banks on their toes.
At the same time, the substantial market shares of the biggest banks — around 15 percent each for Santander and BBVA — allows for economies of scale.
“The bottom line is market share — and good management,” said Antonio Rodríguez-Pina, chief executive of Deutsche Bank in Spain.
Executives have had a longstanding emphasis on cost control and, on the income side, a hard-hitting sales culture.
At the Banesto branch, six of the eight employees were in sales. Branch executives at the three leading Spanish banks are given a degree of independence in pricing products and services for particular clients since the ultimate aim is to strengthen bank-customer ties to ensure the highest possible profitability per client.
“The Spanish model is customer- centric while the Anglo-Saxon model is product-centric,” said José María Fuster, managing director for technology and operations at Santander.
“Go to many U.K. banks, and the card division does not talk to the insurance division — it is about product profitability. In Spain, it is about customer profitability.”
But this should not be taken to mean that clients are given a hard sell and end up buying inappropriate products. The Bank of Spain, the central bank, sets maximum tariffs for financial products and publishes statistics on the number of customer complaints per bank.
Customers are the beneficiaries in other ways too: A 2006 study by the consultancy Deloitte Spain showed that Spanish customers pay the lowest banking costs per capita in Europe.
Spanish financial institutions generate on average €901 a customer a year, which is €194 less than customers in France, Britain, Germany and Italy.
Banco Popular’s chief financial officer, Roberto Higuera, pointed out proudly that of the 437,000 new clients that joined the bank last year, bringing the total number to 6.6 million, 44 percent said it was on the back of a friend’s advice.
That indicates a great degree of existing client satisfaction — something unlikely to happen in most other countries.
