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Earnings

Bankia will rethink its business model to improve its profitability

In the presentation of results for the third quarter of the year, the CEO, José Sevilla, has stated that the entity will seek an improvement in profitability in a context marked by negative interest rates.
 

Communication Bankia

By  Communication Bankia

Publish on 
28 October 2019 - 14:30

Bankia’s CEO, José Sevilla, has stated that Bankia will rethink its business model to improve its profitability in an environment in which interest rates will remain negative for a long period of time.

At a press conference to present the results for the third quarter of the year, Sevilla has pointed out that in a context like the current one, getting a return on equity (ROE) that approaches the cost of capital "becomes complicated".

"It is a reality we must accept and this leads us to rethink our business model with enthusiasm, because we must change things in this context of negative rates to improve our profitability", he pointed out.

Many of the loans held by the bank are linked to the Euribor; therefore, any variation in the index affects the Euribor to a significant extent, given that the forecasts suggest that negative rates will continue.

We must change things in this context of negative rates to improve our profitability.

José Sevilla
Bankia's CEO

Aware of the need to think about its approach to the market, Bankia was already contemplating its 2018-2020 Strategic Plan a change in the mix of the loan portfolio, aiming to increase credit to companies and reduce the weight of the mortgage part.

In the last nine months of the year, part of the improvement in Bankia’s banking business has been linked, on the income side, to great commercial dynamism and also the drop in operating costs. In this regard, Sevilla has emphasised that the future objective is to increase this result through revenue rather than through costs. "The model has to be changed a bit in this regard as well," he added.

Regarding the office network, although in the short term Bankia has no plans to make any cuts, the CEO has said that he will continue to "fine tune" the number of offices to adapt the retail channels of the bank and be in sync with the evolution of the economic reality and with the movements of the population.

In this "new normal", Sevilla has said that Bankia "has no intention" to pass on the cost of deposits to individuals and has encouraged "thinking about" long-term savings to make them more profitable.

Privatisation and strategic plan

The executive has specified that the negative interest rate policy of the European Central Bank (ECB) has a negative effect on Bankia’s income statement, which is why he considers that the current situation is "not the best" for the privatisation of the bank. In this regard, he has advocated waiting for markets to discount a normalisation of interest rates.

This context will also not allow it to achieve a return of 1.3 billion euros at the end of 2020, as was foreseen in the Strategic Plan, but it will not be able to distribute 2.5 billion euros of excess capital among its shareholders above 12% CET1 Fully loaded, which could be made by handing out a dividend, extraordinary dividend or buyback.

"The important thing is to generate excess capital. Once you have it, distributing it is much easier", said Sevilla. Bankia has registered a CET1 Fully loaded of 13% in the first nine months of the year, becoming the most solvent of the large banks, and has generated 1.28 billion euros of capital organically, more than half of what was committed in the framework of the Strategic Plan 2018-2020.

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