However not all the initiatives that have arisen in response to this demand have the same impact on banking business. Allow me to introduce some nuances. 1. First, it is important to understand that, rather than projects that directly compete with banks, some of these technological innovations are in fact operational tools or improvements that credit institutions can incorporate into their own operations. Without giving an exhaustive list, this would, for example, be true of the use of technology to analyse so-called big data i.e. the analysis at great speed of a massive volume of data also generated at great speed and obtained from many sources. There are businesses that, with this tool, are capable of analysing or predicting customer behaviour using a large amount of unstructured information. This technology has many applications in the field of banking. In fact, one of the main assets of credit institutions is the information they have on their customers. Properly harnessed, this information would enable them to better know their risk profile and their preferences and needs, and thus to adapt the offering of financial products for the benefit of both parties. Moreover, banks have an invaluable asset, namely the confidence of bank customers in the confidentiality of their transactions which, as I will mention later should be nurtured and properly valued.
At the same time, the existence of fierce competition for good customers makes it difficult to raise lending rates. A second factor putting pressure on profitability is the still low level of banking activity. In fact, despite the improvement in recent years, year-on-year growth in lending to the private resident sector remains negative, standing at -4% at the end of 2016. Another factor is the still significant volume of non-productive assets (non-performing and foreclosed) on bank balance sheets. The good news is that this volume is falling – last year it fell by 9% –, which translates into lower provisions. Finally, as a result of the financial crisis there has been an increase in the regulatory pressure to which banks are subject. The tightening of the minimum capital requirements for banks, in terms of quantity and quality, has not been accompanied by an equivalent reduction in the perception of the riskiness of banking business, so that its cost of capital remains high and exceeds its profitability. Moreover, the stricter prudential requirements are compounded by the obligation to comply with the new resolution regulations, which requires banks to have a minimum level of liabilities enabling losses to be absorbed should this be necessary (MREL). Again, complying with this minimum volume of liabilities will not be cheap and may in fact be particularly difficult for those banks which, as a consequence of their business model, do not have the necessary experience of issuing this type of instrument.