He is convinced that, apart from the reduction in gas supply, the current crisis could be very moderate, although he warns of “uncertainties”
Out there, more than ever, in Madrid the sun is a butane stove. Inside the building, La Vela’s air conditioning calms the 42 degrees and also the ‘heat’ that Pedro Sánchez introduced by surprise in the form of an announcement of a special tax for banks and energy companies. Coincidentally – for the journalist of course – a two-year interview, the date of which was closed 15 days ago, takes place only 48 hours after the bombing by the prime minister.
Carlos Torres, the president of BBVA, measures words like a Swiss precision machine, but he does not hide his pessimistic opinion about the measure. Not only because it will reduce the resources that the bank can allocate to its capitalization, the reserves; also the person who can distribute among its shareholders, the dividend; but because he is convinced that he will achieve the goal which is diametrically opposed to the goal he is pursuing. He is moderately optimistic in his view of the economic moment, although he admits that the word that dominates any analysis is ‘uncertainty’.
– What’s your take on the bank tax the president just announced?
– At a time of so much economic uncertainty, we all have to row in the same direction. Banks play a key role in supporting society. We did it during the pandemic, we do it every day by supporting families and businesses with credit. And we are doing this despite the economic uncertainty, which is reflected in the flow of credit. I also understand and share the importance of correcting the budget deficit, reducing inequality and protecting the most vulnerable, and increased collection helps. But I don’t think this is the most appropriate way.
– What do you mean?
– The best way to collect more taxes is undoubtedly to grow the economy. More growth means not only higher taxes, but also more employment, more investment, more prosperity. And we are at the disposal of the government to find the best formulas for this, because our sector can be a fundamental lever. For this reason, a special tax on banks could end up having an effect contrary to its intent, because banking is a sector that is at the center of the economy, it is a service that empowers the rest of the sectors.
– Do you consider this decision a punishment for the bank?
– Sector specific taxes should target sectors that generate negative externalities, as a way to reduce their use or consumption. The banking system not only does not generate negative externalities in the rest of the economy, but on the contrary facilitates the allocation of means of production to the most dynamic and fastest growing sectors. Punishing an activity such as banking, which represents the circulatory system of the economy and thus stimulates the rest of the sectors, can lead to a restriction of capital flows to growth projects. Instead of helping to increase consumption and investment, more growth and more revenue, rather than making services cheaper at a time of high inflation, it can end up negatively impacting all of these variables. And so it follows from the available international evidence. The objective of collecting more with a special tax on the financial sector generally leads to less economic growth in the long term and thus to a much lower collection than expected. The ECB already issued an opinion on sector-specific taxes in December 2019, classifying them as undesirable, highlighting the potential negative effects and urging a thorough preliminary analysis.
– The president has said it is a tax that affects the greatest benefit banks should have as a result of the rise in interest rates.
– Spanish financial entities already have a corporate tax rate of 30%, while the normal rate is 25%, that is, we already have a higher tax rate than other sectors. On the other hand, there are extraordinary gains, but what is extraordinary is the negative interest rates for years, which have led to negative bank profitability for the past ten years. The average return on capital of Spanish banks from 2011 to 2021 was -1% per annum. That’s what has been extraordinary. And we are at the beginning of a monetary normalization. The rates are generally slightly positive. We cannot qualify as something extraordinary that is normalization. For this reason, I believe that it is ineffective to impose a special tax on the results arising from a normalized activity. Today, long-term mortgages in Spain are still taken out at negative real interest rates. I’m not saying in comparison to the real inflation that we see, at levels above 10%, but even below the European Central Bank’s inflation target, which is 2%.
– Do you think these kinds of decisions cause uncertainty and reluctance among investors? Especially in the international, both in the financial and in the energy sector.
– The introduction of specific taxes for specific sectors, especially when they are not finalists and do not try to correct negative externalities, usually generates an emerging uncertainty that can lead to the tax being contrary to what is being pursued. Uncertainty is the enemy of private investment and a sector-specific tax, even temporary, adds uncertainty.
– Crisis and more taxes. Will they be able to honor their shareholder compensation commitment? There are over a million individual shareholders in Spain.
– Rewarding the shareholder is a priority issue, which has been reflected in the share buy-back, the dividend policy and the commitment to pay out between 40 and 50 percent of the profit. But the most important variable is the profit figure…
– If you had to describe the economic situation in one word, which word would you choose?
– Insecurity.
– Your commitment in proportion to what can happen.
– It is difficult to know what will happen because it depends on things that can have a very serious impact. We came with very positive momentum after covid and while the growth will continue, the impact of the war has been significant. And not just economically, first as a human tragedy, that’s the most important thing.
Economic forecasts are divided between those who believe a recession is inevitable and those who reject that extreme.
– We continue to see growth this year, but with a lower rate for next year. It will be a very significant drop compared to the estimates we had a few months ago.
– So it does not indicate that there will be a recession.
– Maybe a technical recession. Predictably, we will have negative growth in the last quarter of this year and into the first of 2022. I come back to uncertainty, because if we stopped gas supplies, for example, the likelihood of a longer recession would be greater.
– Are you afraid of a disproportionate increase in credit arrears?
– In such an uncertain environment, it is difficult to predict variables such as economic growth, employment and house prices, the three variables that most influence delinquency. Spanish banking starts from a very good position. Household and corporate debt ratios are also good and so this has little to do with the situation we had during the financial crisis. The debt ratio of households and companies was 35 points higher ten years ago and is now in line with the European average.
– The Spanish economy is not like it was then, but are we in a scenario with many similarities with the oil crisis of the mid-seventies?
– There are some characteristics, such as high inflation or the energetic origin of this price increase. But the situation is very different in the Spanish economy and in the world economy. Energy intensity is lower and trade is more globalized. The role of central banks is also not the same, because fifty years later they already have experience that gives us confidence.
– Some analysts predict a credit freeze. No reduction, but curtailment.
– Banks play a central role in the economy and we have a responsibility. In difficult times we have shown that we are here to help. The most recent case is the pandemic, where the economy fell by double digits and the banking sector took a step forward. We are obligated to be responsible and not to provide credit that we consider to be non-solvent, but we assist our clients with a medium and long term vision and that leads us to stand by their side in hard times. In the current situation, the bank will not add problems, but rather support.
– Is the weakness of the euro against the dollar an additional problem for the Spanish economy?
– There is a double effect that ends in balance. A weaker euro means we import higher inflation, but it also makes us more competitive and supports the tourism industry and the export sector.
– BBVA has talked a lot about sustainability. Is the war forcing us to reconsider certain matters, for example in the energy transition?
– I think it confirmed us in our strategy. The pandemic has shown us that it was necessary to deepen digitization. The invasion of Ukraine has highlighted the importance of energy and independence. And decarbonizing ourselves is the best way to become independent as a country in terms of energy.
– This wouldn’t be an interview, it would be something else, if I didn’t ask about the ‘Villarejo case’, which concerns the bank.
– Well, there’s nothing new, we’re just waiting for the investigation to be completed.
-The banking digitization process has its controversial dimension. Part of the population feels marginalized.
-Digitalization has brought many benefits to our customers and has been crucial in the pandemic, for example. Customers who come to the bank via mobile have quadrupled in four years. Digital transactions have doubled and customer satisfaction has increased by 25 points in the net recommendation index. The combination of self-service with the support of a remote team is an unbeatable combination. Half of our customers over the age of 60 already use digital channels. But this is compatible with leaving no one behind, especially the groups that have more difficulty adapting to this new formula of interaction. The opening hours of more than 600 offices have been extended; there are preferential service channels; the application has been simplified and there are 350 employees dedicated to more personal attention.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
