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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 Banco de España - Servicio de Estudios 1 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 Banco de España - Servicio de Estudios 2 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 Banco de España - Servicio de Estudios 3 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 Banco de España - Servicio de Estudios 4 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 Banco de España - Servicio de Estudios Securities Insurance Other 5 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 Banco de España - Servicio de Estudios Equity Trade credits Other 6 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 Banco de España - Servicio de Estudios 7 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 Banco de España - Servicio de Estudios 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 8 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 Banco de España - Servicio de Estudios EMU USA 9 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 Banco de España - Servicio de Estudios 10 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 Banco de España - Servicio de Estudios SCLV CADE MEFF CLEARING HOUSE 11 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 Banco de España - Servicio de Estudios EMU USA 12 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 Banco de España - Servicio de Estudios 13 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 Banco de España - Servicio de Estudios 0 0 14 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 Banco de España - Servicio de Estudios 15