Transcript the structure of the spanish financial system

BANCO DE ESPAÑA
THE STRUCTURE OF THE SPANISH
FINANCIAL SYSTEM
José Luis Malo de Molina
Banco de España. Director General
ICO’s International Executive Training Programme in Development Banking
ICO. 31 March 2003
THE TRANSFORMATION OF THE SPANISH FINANCIAL
SYSTEM

In the early 80s the Spanish financial system was rigid, underdeveloped,
closed and heavily intervened. But it has since changed drastically

Two main (interlinked) driving factors:

Changes in the macroeconomic environment

Changes in financial regulation
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CHANGES IN THE MACROECONOMIC ENVIRONMENT

High inflation, increasing fiscal deficit and interest rate volatility fostered
financial innovation

At the same time fostered stabilisation policies:

Decisive anti-inflationary orientation of monetary policy, which
gradually gained credibility

Fiscal consolidation plan, which received further impulse from the
run up to EMU


Spain joined EEC in 1986 and the Peseta entered the ERM in 1989
As a positive result of those policies, Spain successfully completed its
nominal convergence process by being included among the first group of
countries forming the EMU in 1999
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CHANGES IN FINANCIAL REGULATION

1980s
 Prudential supervision framework completed: Banco de España
(credit institutions) newly created CNMV (securities) and DGS
(insurances)
 Bank rates and charges and commissions in securities markets fully
liberalised
 Capital movements partially liberalised
 Book-entry public debt market comes into operation

1990s
 Second Banking Directive transposed (freedom to establish and
provide banking services)
 Compulsory investment requirements on banks lifted and reserve
requirement markedly reduced
 Capital movements fully liberalised
 Full freedom to establish and provide financial services

2000s
 Investor compensation system created
 New measures on transparency and good practices
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THE SPANISH FINANCIAL SYSTEM IN 2003

As a result the Spanish financial system is today a flexible developed
and internationally active system well in line with those of other
continental European countries

Let us briefly review its main features
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A BANK-BASED SYSTEM

Share of deposits in household financial assets in Spain:


Similar to the EMU average
Higher than in the USA
HOUSEHOLD FINANCIAL ASSETS
SPAIN
7%
14%
EMU
USA
3%
1%
30%
23%
15%
30%
34%
45%
54%
44%
Deposits
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Securities
Insurance
Other
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A BANK-BASED SYSTEM

Spanish corporations mainly use bank credit to cover their debt finance


Share of loans is similar to the EMU average and higher than in the
USA
Share of fixed income is similar to the EMU average and lower than in
the USA
NON-FINANCIAL CORPORATIONS FINANCIAL LIABILITIES
EMU
SPAIN
USA
1%
3%
2%
6%
12%
24%
15%
27%
22%
1%
3%
51%
51%
27%
55%
Loans
Fixed income
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Equity
Trade credits
Other
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THE BANKING SYSTEM

Healthy, internationally active and compares favourably with the
EMU average
Spain
1995
Total assets (%GDP)
Number of institutions
per 100,000 inhabitants
ROE (after tax)
Solvency ratio (Total)
Solvency ratio (Tier1)
Provisions/ Doubtful assets
Efficiency ratio
Foreign claims (%GDP)
EMU
USA
2001
176.6
193.0
260.0
64.6
0.81
0.70
2.45
3.36
10.9
15.4
11.3
15.7
11.9
11.0
10.7
12.4
10.3
8.7
7.7
9.6
71.0
201.9
95.6
171.7
68.8
61.4
65.6
56.9
11.9
59.3
79.3
8.7
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THE BANKING SYSTEM

Although there are some differences among different types of
institutions
Commercial banks
Number of institutions
Total assets (non-consol.) (%GDP)
Total assets (consol.) (%GDP)
ROE (after tax)
Solvency ratio
Percentage of business abroad
Provisions/ Doubtful assets
Efficiency ratio
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Savings banks
Cooperative banks
146
47
88
102.4
69.0
6.8
123.5
73.3
7.0
15.7
12.7
9.9
9.5
11.5
11.1
30.3
1.7
0.0
172.1
222.0
155.8
59.0
62.2
62.0
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OTHER INTERMEDIARIES

Institutional investment is lagging behind the EMU average and the
USA…
% GDP
200
180
160
140
120
100
80
60
40
20
0
% GDP
200
180
160
140
120
100
80
60
40
20
0
INSURANCE COMPANIES
MUTUAL FUNDS
PENSION FUNDS
SPAIN
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EMU
USA
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OTHER INTERMEDIARIES

… but has grown significantly over the 90s
TOTAL ASSETS
% GDP
% GDP
60
50
40
30
60
INSURANCE COMPANIES
MUTUAL FUNDS
PENSION FUNDS
50
40
30
20
20
10
10
0
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
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FINANCIAL MARKETS

The organisation of financial markets has evolved from a segmented
structure to a consolidated one:



Interconnection of stock exchanges
MEFF-AIAF-SENAF platform
Merger of SCLV and CADE
BOLSAS Y MERCADOS ESPAÑOLES sociedad holding mercados y sistemas financieros, SA
Governing
bodies
STOCK MARKET MANAGEMENT COMPANIES
MADRID
BARCELONA
BILBAO
VALENCIA
MEFF-AIAF-SENAF holding mercados financieros, SA
AIAF
Trading
centres
Open
outcry
trading
SENAF
MEFF HOLDING
SPANISH
STOCK
MARKET
INTERCONNEC
TING
SYSTEM
MEFF FIXED
INCOME
MEFF
EQUITIES
IBERCLEAR
Clearing
and
settlement
of securities
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SCLV
CADE
MEFF
CLEARING
HOUSE
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FINANCIAL MARKETS

The relative size of the stock exchange and public debt market is similar
to the EMU average but smaller than in the USA

The relative size of the private debt market is smaller than in both the
EMU and the USA
SIZE
% GDP
% GDP
120
100
80
120
STOCK EXCHANGE CAPITALISATION
100
PUBLIC DEBT. OUTSTANDING AMOUNTS
80
PRIVATE DEBT. OUTSTANDING AMOUNTS
60
60
40
40
20
20
0
0
SPAIN
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EMU
USA
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FINANCIAL MARKETS
Public debt market is by far the most active and liquid exchange in Spain

% GDP
ANNUAL TURNOVER
% GDP
350
300
250
200
350
STOCK EXCHANGE EQUITIES
PUBLIC DEBT
DERIVATIVES MARKETS. EQUITIES
OTHER FIXED-INCOME MARKETS
300
250
200
150
150
100
100
50
50
0
0
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FINANCIAL MARKETS

Spanish financial markets show a high degree of internationalisation
SHARE OF TURNOVER BY NON-RESIDENTS
%
60
50
40
OUSTANDING AMOUNTS HELD BY NON%
%
RESIDENTS
%
STOCK
EXCHANGE
DERIVATIVES
MARKETS.
EQUITIES
60 60
50 50
STOCK EXCHANGE EQUITIES
60
PUBLIC DEBT
PRIVATE DEBT
50
40 40
40
30
30 30
30
20
20 20
20
10
10 10
10
0
0
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0
0
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FINAL REMARKS

The Spanish financial system is currently a developed, internationalised
and healthy system

It is still mainly a bank-based system although both other intermediaries
and markets are gaining momentum

Banks’ health and market consolidation place the Spanish financial
system in a good position to face the challenges of financial globalisation
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