Yet in a setting where credit accounts for a significantly lower proportion of assets than it did then, these expenses should also be lower given that the costs associated with the management of non-credit assets are lower. The consolidated statements show that, despite the deterioration in efficiency levels, the Spanish banking system’s efficiency ratios remain better than those of the main European banking systems and also than those of banks in the United States and Japan, although they are worse than those observed in other jurisdictions such as, for example, the Nordic countries Once again, to illustrate the potential gains, in terms of rates of return, of an improvement in efficiency, in a scenario in which banks achieved their best (lowest) efficiency ratio since 2000 (43.2% in 2009), it is estimated that the profit attributed to the dominant institution would have been almost € billion higher than the figure actually recorded in June 2019. In consequence, ROA would have increased by 17 bp and ROE by 2.2 pp. If we combine this hypothetical scenario with that of the non-performing loan ratio at record lows, annual profit could have been almost € billion higher than the actual figure, with ROA 27 bp higher and ROE 3.5 pp higher. Thus, ROE would be comfortably above the statistically viable upper range for estimation of the cost of equity.
Fifth, we cannot overlook the potential role of international diversification, as shown by the part it has played in some of the largest Spanish banks in the last decade. Thus, over that period, the Spanish banking sector has increased its international exposure by 45%, while banks in countries such as Germany, France and Italy have reduced their international exposure by 38%, 16% and 15%, respectively. Despite the risks associated with business in emerging market economies, international diversification of banking business, especially when focused on retail business and organised in a decentralised manner, brings important benefits, in terms of greater diversity of business models and revenue sources, as was seen during the last crisis. In addition,  18/29  there is evidence that the lower the level of synchrony between the economic and financial cycles of the countries in which banks operate, the greater these benefits.5 In this respect a profound reflection at the European and the international level on the regulatory treatment of diversification in the banking business may be appropriate, so that, in conjunction with the greater complexity it may entail, some of its beneficial effects on banks’ risk profiles may be afforded better recognition. Sixth, nor should we overlook the importance of operational risk being correctly managed by banks. Operational risk accounts for 9.3% of the risk-weighted assets of Spanish deposit institutions by volume, slightly below the European average (10.5%). In any event, we know on past experience that the deterioration in solvency associated with an operational risk event can be high.