Out there, more than ever, in Madrid the sun is a butane stove. Inside the building, the air conditioning of La Vela appeases the 42 degrees and also the ‘heat’ that Pedro Sánchez has introduced, by surprise, in the form of an announcement of a special tax for banks and energy companies. As luck would have it -for the journalist, of course-, that an interview persecuted for two years and whose date was closed fifteen days ago, takes place just 48 hours after the bomb launched by the Prime Minister.
Carlos Torres, the president of BBVA, measures words like a Swiss precision machine, but he does not hide his pessimistic opinion about the measure. Not only because it will reduce the resources that the bank can allocate to its capitalization, the reserves; also the one that can distribute among its shareholders, the dividend; but because he is convinced that he will obtain the objective diametrically opposite to the one he pursues. In his vision of the economic moment he is moderately optimistic, although he admits that the word that dominates any analysis is “uncertainty”.
– What is your opinion of the bank tax that the president has just announced?
– At a time of so much economic uncertainty we all have to row in the same direction. Banks play a key role in supporting society. We did it during the pandemic, we do it day by day supporting families and companies through credits. And we continue to do so despite the economic uncertainty and that can be seen in the flow of credit. I also understand and share the importance of correcting the fiscal deficit, reducing inequality and protecting the most vulnerable, and for this a greater collection helps. But I think this is not the most appropriate way.
– What do you mean?
– Without a doubt, the best way to collect more taxes is for the economy to grow. Greater growth implies not only increasing taxes, it also implies more employment, more investment, more prosperity. And we are at the disposal of the Government to find the best formulas for this to happen, because our sector can be a fundamental lever. For this reason, a special tax on banks may end up producing an effect contrary to what is intended, because banking is a sector that is at the center of the economy, it is a service that empowers the rest of the sectors.
“Financial institutions already have a rate of 30% compared to 25% for the rest”
An investment restriction
– Do you consider that this decision is a punishment to the bank?
– Sector-specific taxes should be directed at those that generate negative externalities, as a way of reducing their use or consumption. The banking system not only does not generate negative externalities in the rest of the economy, but on the contrary, it facilitates the allocation of productive resources to the most dynamic and fastest growing sectors. Penalizing an activity such as banking, which represents the circulatory system of the economy and therefore stimulates the rest of the sectors, can result in a restriction of capital flows to growth projects. Instead of helping to increase consumption and investment, more growth and more revenue, instead of making services cheaper at a time of high inflation, it may end up negatively affecting all these variables. And so it follows from the available international evidence. The objective of collecting more with a special tax on the financial sector tends to end up generating less long-term economic growth and, therefore, a much lower collection than expected. The ECB already issued an opinion on sector-specific taxes in December 2019, qualifying them as undesirable, highlighting their potential negative effects, and urging a prior exhaustive analysis.
– The president has said that it is a tax that affects the greatest benefit that banks are supposed to have as a result of the rise in interest rates.
– Spanish financial entities already have a Corporate Tax rate of 30%, when the normal rate is 25%, that is, we already have a higher tax than other sectors. On the other hand, there is talk of extraordinary profits, but what has been extraordinary has been the negative interest rates for many years, rates that have led to a negative profitability of banks during the last decade. The average return on capital of Spanish banks from 2011 to 2021 was -1% per year. That is what has been extraordinary. And what we are in is at the beginning of a monetary normalization. Typically, rates are slightly positive. We cannot qualify as extraordinary something that is normalization. For this reason, I believe that it is not effective to levy a special tax on the results derived from a normalized activity. Today in Spain long-term mortgages are still obtained at negative real rates. I am not saying in comparison with the real inflation that we are seeing, at levels above 10%, but even below the inflation target of the European Central Bank, which is 2%.
“Decarbonizing ourselves is the best way to be independent in terms of energy”
Opposite effect
– Do you think that decisions of this type generate insecurity and reticence in investors? Especially in the international ones, both in the financial and energy sectors.
– The creation of specific taxes for specific sectors, especially when they are not finalists and do not seek to correct negative externalities, usually generates a supervening uncertainty that can lead to the effect of the tax being contrary to that which is pursued. Uncertainty is the enemy of private investment and a sector-specific tax, even temporary, adds uncertainty.
– Crisis and more taxes. Will they be able to keep their shareholder remuneration commitment? There are more than a million individual shareholders in Spain.
– Remunerate the shareholder is a priority issue, which has materialized with the repurchase of shares, with the dividend policy and the commitment to distribute between forty and fifty percent of the profit. But the key variable is the profit figure…
– If you had to define the economic situation in one word, which would you choose?
– Uncertainty.
“We start from a very good situation. This has little to do with the financial crisis.
– Your bet in relation to what can happen.
– It is difficult to know what is going to happen because it depends on issues that can have a very serious impact. We came with a very positive momentum after covid and although growth will continue, the effect of the war has been great. And not only economic, first as a human tragedy, which is the most important thing.
– Economic forecasts are divided between those who believe recession is inevitable and those who reject that extreme.
– We continue to see growth this year, but with a lower rate for next year. It will be a very significant drop compared to the estimates we had a few months ago.
– Therefore, it does not point to the thesis that there will be a recession.
– A technical recession maybe yes. Predictably we will have negative growth in the last quarter of this year and in the first of 2022. I return to uncertainty, because if we had gas supply cuts, for example, the chances of a longer recession would be higher.
in good position
– Do you fear a disproportionate increase in delinquencies in credits?
– In such an uncertain environment, it is difficult to make predictions of variables such as economic growth, employment and house prices, which are the three variables that most affect delinquency. Spanish banking starts from a very good position. The debt ratios of families and companies are also good and therefore this has little to do with the situation we had in the financial crisis. The debt ratio of families and companies was 35 points higher ten years ago and is now in line with the European average.
– The Spanish economy is nothing like that of then, but are we in a scenario with many similarities to the oil crisis of the mid-seventies?
– There are some features, such as high inflation or the energy origin of this price increase. But the situation is very different in the Spanish economy and in the world economy. Energy intensity is lower and trade is more globalized. The role of central banks is not the same either, because fifty years later they already have experience that gives us confidence.
Do not add difficulties
– Some analysts predict a credit freeze. No reduction, but containment.
– Banks play a central role in the economy and we have a responsibility. In times of difficulty we have shown that we are there to help. The most recent case is the pandemic, where we had a double-digit drop in the economy and banking took a step forward. We are obliged to be responsible and not extend a credit that we consider to be not solvent, but we stand by our clients with a medium and long-term vision and that leads us to be by their side in difficult times. The bank is not going to add difficulties in the current situation but rather support.
– Is the weakness of the euro against the dollar an added problem for the Spanish economy?
– There is a double effect that ends in balance. A weaker euro means we import higher inflation but it also makes us more competitive, supporting the tourism industry and the export sector.
– BBVA has talked a lot about sustainability. Does the war force us to rethink some things, for example in the energy transition?
– I think it has reaffirmed us in our strategy. The pandemic showed us that it was necessary to deepen digitization. The invasion of Ukraine has made clear the importance of energy and being independent. And decarbonizing ourselves is the way to be independent as a country in terms of energy.
– This wouldn’t be an interview, it would be something else, if I didn’t ask about the ‘Villarejo case’, which affects the bank.
– Well, there is nothing new, we are just waiting for the investigation to be completed.
“Digitization is compatible with leaving no one behind”
-The banking digitization process has its controversial dimension. A part of the population feels marginalized.
-Digitization has brought many advantages to our clients and, for example, it has been key in the pandemic. Customers who access the bank via mobile have multiplied by four in four years. Digital transactions have doubled and customer satisfaction has increased 25 points in the net recommendation index. The combination of self-service with the support of a team that attends remotely is an unbeatable combination. Half of our customers over 60 years old already use digital channels. But this is compatible with not leaving anyone behind, especially the groups that have more difficulty adapting to this new formula of interaction. The hours of more than 600 offices have been extended; there are preferential attention channels; the application has been simplified and there are 350 employees dedicated to greater personalized attention.