Thus in 2004 Spanish credit institutions again achieved very high levels of profitability, whether measured as growth on the previous year or as ROE, which was more than 14% higher than the average reported by their international competitors. The high business volumes, which more than offset the negative effects of low interest rates on net interest income, and the tight control over operating expenses, which enabled the efficiency ratio to be further improved, are the two basic factors behind this favourable performance. Moreover, business activity has been stepped up precisely through instruments that provide institutions with collateralised assets, specifically mortgage loans, which are characterised by lower default rates. Finally, this favourable earnings performance is also a result of the diversification of income sources, with significant growth of those associated with the provision of collection, payment and non-banking product services. Solvency remains at levels comfortably above the minimum regulatory requirements, although the strong growth of business, and therefore of capital requirements, meant that the bank solvency ratio decreased slightly in 2004 with respect to 2003. In the case of Spain, this solvency was strengthened by a rigorous bad debt provisioning policy. That said, the more optimistic and favourable the central scenario, the greater the need to pay careful attention to potential fragilities.
Invest wisely As we build up our savings, some of us may wish to invest part of it to obtain higher returns. Investments in bonds, equities, mutual funds (or unit trusts) and other financial products typically yield higher returns than bank deposit rates over the medium to long term. But they also carry higher risks.   For the majority of financial investments, neither the returns nor the principal amount invested are guaranteed. This means we could potentially get less than what we have put in. MAS has set stringent disclosure requirements for financial products. We also require that information be provided in a clear and concise manner, through the use of Product Highlight Sheets, for example. But the responsibility ultimately lies with the investor. Every month, MAS receives, on average, about 10 complaints from the public involving the sale of investment products. To be sure, some of them involve mis-selling or poor disclosure, for which the financial adviser or institution is responsible. But there many others – sad stories of people who have lost their money because they did not exercise basic due diligence:   people who were attracted by the lure of high returns and purchased investment products without realising their risks;    people who listened to tips about “sure-to-win” investments and invested large sums of money in them without reading the product documentation;    people who signed blank sheets understanding what they were buying.