The fall in profitability by negative interest rates, a shift in customer habits caused by new technologies, and reputation are some of the major challenges that should lead the European financial sector to reflect on its business model, Bankia's chairmanJosé Ignacio Goirigolzarri assured.
European banks' profitabilityremains below their long-run cost of capital due to the increase in capital demands and the negative interest rates era, which has lead them to be listed at 50% of their book value. American banks conversely have a capitalisation 17% higher than their book value.
This is an issue not just for the financial system but also to the economy since "a country needs a solid and profitable financial system. If profitability is below the cost of capital, the system will be infra-capitalised and, consequently, will not be able to finance its economy, therefore slowing down its development, " Goirigolzarri said.
If profitability is below the cost of capital, the system will be infra-capitalised and, consequently, will not be able to finance its economy, therefore slowing down its development."
He added that banking managers must make use of technology to tackle this issue. "Technology allows us to improve our efficiency and, at the same time, provide excellent service to our customers."
THE REPUTATION CHALLENGE
Goirigolzarri admitted that reputation was still one of the biggest challenges faced by the banking industry nowadays.
He said: "A project, an industry or a company are only sustainable over time if society wants it to exist and understands its usefulness.
"There is no doubt that the banking industry must obey excellent professional and ethical criteria, because otherwise it would be a constant source of suspicion which would generate a significant weakness. This must be a goal for each and every entity in order to improve the reputation of the industry."
The chairman of Bankia warned that we must be cautious when it comes to economic policies in Spain because the risks presented by some structural challenges. Although the country's economic growth is above the European mean, unemployment rates and public debt levels are risks to prioritise and manage in the mid-term.
When referring to the global economy, he said: "The world has seen recently a reasonable economic growth, synchronised in different regions but the global economy depends more on the US now while the European economy is experiencing deceleration."
However, the Spanish banking industry is in his views solvent and properly capitalised, as the latest stress test from the ECB proved. He added: "And this progress has been thanks to the great transformation of the industry within the last decade motivated by an enormous consolidation process and by the efforts put into strengthening balances."