Annual report
EVOLUTION OF THE MEMBER SAVINGS BANKS
Throughout 2009, the international financial system was as convulsive as it had been at the end of the previous financial year. Generally speaking, it can be said that this was a year when the economy and markets fell drastically despite the huge efforts directed towards cash injections, expansive monetary policy and subsidies from both the public and institutional sector, to register minimums that had only ever been been reached in the worst of crises. Instability and uncertainty were therefore the two key elements which characterised this financial year.
As the months went by, however, certain signs became apparent of a change in trend and recovery in economic and financial activity, beginning the slow path back to normality. Money-market tensions have gradually eased, although pre-crisis levels are still a long way off.
It should be noted that while high levels were recorded in the first part of the year, financing costs have gradually mellowed and access to wholesale markets has become more fluid. Thanks to attractive interest rates, corporate debt issue by companies is becoming more important and this is accompanied by reduced financing costs and extended terms. Financial entities also cut their asset rates.
Certain variables, however, behaved completely abnormally. Credit demand dropped and this was accompanied by an increase in payment arrears requiring growing levels of funding. Collectively, there was a high consensus among the main international financial and political institutions on the need for a restructuring of the financial system, its rules of play and its institutional architecture in order to avoid similar future collapses to those experienced in recent times.
Faults (both specific and general) in the financial supervision system which were exposed with the crisis and delayed action by national supervision systems regulating national and cross-border transactions have lead the European Commission to propose a series of ambitious reforms to the European financial architecture, while some EU countries have already begun reforms of their own to their supervisory systems.
The lack of synchrony and the diversity of approaches could jeopardize the success of such reforms. It is in this context of reforms that a new European supervision structure was created. The European Commission proposed a new outline for reorganizing the European financial architecture in order to control risk (creation of the European Systemic Risk Board) and cross-border activities, while in Spain the FROB (Fund for Orderly Bank Restructuring) was created to manage the restructuring processes of credit institutions.
Progress has also been made on the creation of the European Banking Authority, European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority.
In view of the lack of synchrony in certain European countries, there is a basic consensus on guiding reforms towards a greater control and better supervision systems.
It is necessary to increase capital demands particularly in times of economic boom, and also to promote liquidity control legislation. Consensus has also been reached about the need to establish special schemes for institutions which involve systemic risk, i.e. "too big to fail" businesses. In conjunction with the stimulation measures applied by monetary authorities (e.g. successive cuts in the cost-of-money rate in January, March, April and May), the Euribor dropped sharply to close the financial year at 1.24%.
Similarly, the 3-month rate dropped from 3.29% to 0.71% ( a drop of 258 basic points in December 2009 on the previous December) and the 1-year rate dropped from 3.45% to 1.24% (a reduction of 221 basic points in the same period).
Similar generalized drops in interest rates were also recorded in the United States, Japan, the United Kingdom, etc. In parallel, the public debt market which recorded high volumes of bonds for tackling the growing public deficits of developed countries has behaved in a stable way.
Public debt markets were increasingly volatile by the end of the year, with markets requesting increasing risk premiums to those securities issued by economies with important imbalances in their public accounts. This resulted in important increases in rate differentials in relation to the 10-year German bond following a process of convergence and normalization, with Spanish bonds standing at around 60 basic points by the end of the year.
The dollar/Euro exchange rate remained fairly stable at around 1.5%.
Throughout this financial year, the deposits of other resident sectors (ORS) in Spanish credit institutions reached 1.19 billion euros, with an absolute increase of 36,677 million euros (3.2%).
In the same period, assets managed in collective investment vehicles in Spain fell in gross terms by 3.7%, equivalent to 6,500 million euros less than at the close of the previous financial year. The total balance stood at 169,900 million euros. In valuation terms, net saver subscriptions and returns fell even more sharply by 8.6%.
The final end-of-year balance of ORS credit investment activity totalled 1.84 billion euros, which when compared to the 1.86 million euros at the close of the previous financial year meant a drop of 6,552 million euros (-0.35%). Collateral-secured loans totalled 1.1 billion euros following a 0.64% increase of 7,055 million euros and mortgage-secured loans totalled 1.07 billion euros (with a 0.98% increase of 10,450 million euros).
The performance of the Basque-Navarre Savings Banks must be set amidst the diminishing behaviour of macronomeconomic variables in general. The pre-tax profits generated in 2009 by all our member institutions totalled 576 million euros which was 9.2% down on the previous financial year, a long way from the drops suffered by the savings bank sector.
In 2009, the total balance of the Basque-Navarre Savings Banks totalled 78,396 million euros, following a 1.9% increase in relation to the previous year. Creditor resources dropped by 2,022 million euros (-3.4%) to 57,803 million euros, which represented 74% of the total balance.
There was a 3.7% increase in the commercial resources administered (resulting from adding to the creditor resources those operations which entail raising client funds which are not directly reflected in the balance since they are placed in the assets of collective investment institutions and voluntary social provision bodies), with this financial year's balance totalling 63,410 millions de euros which was 2,279 million euros higher than that of the previous year. Amidst the difficulties posed by the current economic situation, the Federation Savings Banks continued with their commitment to economic and social agents by financing productive investments, housing, consumption and general activities destined to satisfy their customers' needs. In this regard, credit investment grew by 1.3% to total 57,388 million euros which was 709 million euros higher than in 2008.
Collateral-secured operations rose by 2.2%. Similarly, troubled assets on the balance sheets of our institutions rose by 43.2% to reach 1,618 million euros.
At the close of 2009, the securities portfolio of the Basque-Navarre Savings Banks totalled 12,452 million euros which was 1.4% higher than that of the previous year.
