Miguel Fernández Ordóñez: Spanish financial institutions in the face of the new competitive scenario Opening address by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, of the XVI Financial Sector Meeting “Spanish financial institutions in the face of the new competitive scenario”, ABC-Deloitte Forum, Madrid, 21 April 2009. *  *  *  Thank you very much for inviting me to participate in this meeting which will address a subject –Spanish institutions in the face of the new competitive scenario – of the utmost importance at the current juncture. The highly exceptional difficulties besetting the global financial system and economy require decisive action from all of us who, in one way or another, have responsibilities in these matters. The public authorities of different countries, including those in Spain, are taking measures which in many cases are unprecedented. But their efforts cannot and should not be restricted to this area: the managers of financial institutions must reorganise and adapt their business models to the new competitive environment, actively seeking out levers permitting this process of change. I will devote the bulk of my address to this issue, not without briefly describing the situation of the Spanish banking system as a whole set against the international outlook. The external environment remains hugely complex.
First, the notable increase in risk premia, in a very sharp pendulum swing, has surely over-corrected the abnormally low levels reached in summer 2007, so these levels will foreseeably not be regained when conditions in the international financial markets return to normal. Second, the persistent difficulties in obtaining funding on the wholesale markets, which are also unlikely to regain the rate of expansion seen in the past, have led to notably heightened competition for new deposits, particularly time deposits, the cost of which is higher than that of other alternative sources of  BIS Review 52/2009  3  funding. Lastly, it should be recalled that in a setting of low interest rates, the cost of bank deposits has a floor, and this also contributes to the narrowing of margins. For these reasons, the net interest margin will foreseeably come under downward pressure in an environment in which it is not, and will not conceivably be, offset by increases in the volume of activity. Fees and commissions fell slightly in absolute terms. Firstly, analysis of the various components of fee and commission income shows that those directly related to more traditional banking activity have, in line with their lower rate of expansion, grown more moderately. Secondly, Spanish deposit institutions have been marketing non-bank financial products and securities services to their customers, which has generated significant fees and commissions. However, the data for December 2008 reflect a fall in fee and commission income from business of this type.