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The creation of a new BBVA after the merger with Sabadell could worsen the conditions of access to credit for customers. It is one of the arguments of the report published by the National Markets and Competition Commission and on which the decision to study the consequences of the merger in more detail before authorizing it is based.
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The document published by the CNMC notes risks in the credit market, especially in business payment systems, and also risks of greater financial exclusion, while ensuring that, in general terms, the operation does not pose a competition problem at municipal level.
The union of the two banks would mean that the new BBVA would be the only entity in eight municipalities and that another 50 would remain in a duopoly situation. A scenario in which BBVA “would have the incentive and ability to change the conditions of individual customers and SMEs, without the risk of losing customers”, concludes Competencia. This is particularly problematic in the POS market where the combination of Sabadell and BBVA would create the leading entity with a 30% market share. In this field, the CNMC concludes that “the analysis carried out also reveals high concentration rates which indicate potential competition problems”.
Furthermore, the CNMC is more concerned about the worsening of credit than the reduction of loans, although it adds that “it cannot exclude that the operation generates a risk of (…) reduction of credit to SMEs”, one of the arguments that Banco Sabadell has defended more since the operation was launched
The analysis published by Competencia also details the impact that the creation of the new BBVA-Sabadell would have on financial exclusion. In fact, there are already eight municipalities where BBVA or Sabadell are the only entities present. The competition sees the risk of branch closures in these locations, located in rural areas, and of an elderly population considered financially vulnerable: “the closure of branches in these cases would deprive them of access to financial services or cause them to be forced to move to other nearby municipalities to be able to meet their demand for retail banking services in person at a branch,” the report reads.
BBVA is committed to not closing locations if there is no competition
The competition report also reveals commitments BBVA has made to try to overcome these concerns and gain approval for the deal, including a promise not to close offices in areas where it could cause problems and to maintain current conditions for customers in some areas highlights the situations.
Specifically, in areas where fewer than four banks operate, BBVA will maintain the current commercial conditions for its customers and those of Sabadell, as well as guaranteeing that the cash lines opened by Banco Sabadell will be maintained for a year and a half. There is also a commitment that the prices of new loans to SMEs in these areas do not exceed the average price applied nationally.
And to avoid the risk of greater financial exclusion, what BBVA does is promise that it will not close offices when there are no others of the same size within 300 meters and not to abandon municipalities where there are no more than three competitors , as well as the creation of a specific and free account for vulnerable customers.
How might the merger change the competitive landscape for small to medium-sized enterprises seeking loans?
Interview: The Future of Banking Post-BBVA and Sabadell Merger
Interviewer (Time.news Editor): Welcome! Today, we have an esteemed expert in banking regulation and market dynamics, Dr. Laura Martinez. Thank you for joining us, Dr. Martinez.
Dr. Laura Martinez: Thank you for having me! It’s a pleasure to discuss such an important topic.
Interviewer: The recent report from the National Markets and Competition Commission (CNMC) raises concerns about the potential merger between BBVA and Sabadell. What are the primary risks identified regarding credit access for customers?
Dr. Martinez: Absolutely, the CNMC highlighted some critical risks associated with the merger. Primarily, there are concerns that the new BBVA could worsen the conditions of access to credit for individual customers and small to medium-sized enterprises (SMEs). The report suggests that the increased concentration in the market might lead to less competitive pressures, giving the merged entity the incentive to alter credit terms unfavorably for customers.
Interviewer: That sounds alarming, especially given the importance of credit access for SMEs. Could you elaborate on why SMEs are particularly highlighted in this context?
Dr. Martinez: Certainly! SMEs are often more vulnerable in such market scenarios because they lack the leverage that larger companies have. If BBVA becomes the dominant entity, especially in the municipalities where it would be the only bank, it could significantly impact the credit conditions for these smaller enterprises, who may already struggle to secure favorable terms. The potential for reduced credit availability could stifle their growth and innovation.
Interviewer: The report mentions a duopoly in about 50 municipalities as well. How does that factor into the competition landscape post-merger?
Dr. Martinez: A duopoly indicates that there are only two significant competitors in those municipalities. While this may seem competitive at first glance, it often leads to complacency. Both banks could theoretically coordinate their actions in terms of pricing and credit conditions, knowing that consumers have limited alternatives. This reduced competitive pressure can lead to higher fees, reduced services, and ultimately, poorer outcomes for consumers and businesses alike.
Interviewer: What specific markets are being scrutinized in this merger aside from credit access?
Dr. Martinez: One key area is the point-of-sale (POS) systems, where the merger could create a leading entity with a significant 30% market share. The CNMC has pointed out that this level of concentration poses serious competition risks. With fewer players in the market, businesses could face higher transaction costs, which may be passed down to consumers.
Interviewer: The CNMC also expresses concern over financial exclusion. Can you explain how this merger could amplify those risks?
Dr. Martinez: Yes, financial exclusion is a significant concern post-merger, especially in already underserved areas. In eight municipalities, either BBVA or Sabadell is currently the only banking option available. If the merger goes through, these communities could face dire consequences such as limited access to banking services and credit. The absence of competition can create a scenario where the merged entity does not feel the need to improve services or engage with local communities, further marginalizing those residents.
Interviewer: What do you believe should be done before permitting this merger to proceed?
Dr. Martinez: Comprehensive regulatory assessment is crucial. The CNMC should conduct a deeper investigation into how the merger will impact credit access, market competition, and consumer options. Implementing measures to safeguard consumer interests, such as stipulating binding commitments to maintain competitive conditions and prevent financial exclusion, is essential. Policymakers must balance the operational efficiencies anticipated from such mergers with the potential adverse effects on competition and consumers.
Interviewer: Thank you, Dr. Martinez, for your insights into this complex issue. It seems there is much to consider as the regulatory bodies deliberate this potential merger.
Dr. Martinez: Thank you for having me! It’s a vital conversation, and I hope that regulators make decisions that truly benefit consumers and the financial ecosystem as a whole.