Are there lessons for UK banks in the Spanish experience?

At the end of July, Banesto, BBVA and Santander reported very positive Q2 results; BBVA described them as “its best ever” and Santander’s UK profits are up by 30%. So, what are they getting right that the UK is getting wrong? It seems to all boil down to their approach to risk & regulation. Following the near crisis of the 1980s the Spanish government responded to the fallout from reckless industry loans with tighter central bank control, banning on off-balance vehicles and insisting that banks make extra provision during boom times. Just as the UK retail and investment banks took on greater exposure (and secured greater income), regulation and compliance in Spain ensured that its banks had solid foundations.

Although many smaller savings banks in Spain have been hit hard by bad debts resulting from loose mortgage lending, but the approach of the larger banks to risk management has seen the creation of substantial, well remunerated and long-term risk committees, which met regularly. A big difference from the UK where the Chief Risk Officer has too often been a bolt-on, fleeting solution. Emilio Botín (Chairman, Banco Santander), summed up the approach of larger Spanish banks to risk last year when he commented “[risk management] consumes a lot of our directors’ time. But we find it essential. And it is never too much.”

There’s also been a revolution in efficient banking systems in Spain. Investment in modern platforms means that the Spanish consumer has access to real time reconciliation of their personal financial information via multiple channels, including the ATM, whilst the UK consumer is still reliant on end of day reconciliation. Spanish banks have focussed on the home market, whilst UK banks chased ever more complicated offerings.

So it seems that UK banks could benefit from tapping into the Spanish solution and considering a new approach to regulation, risk management and investment in technology platforms. City financial institutions could shake off the mañana approach to efficient banking during this difficult economic period and take advantage of the expertise and style of their Spanish counterparts.

Graham Underwood, Managing Director, GFT UK