New wave of consolidation may swallow Spanish banks

HIGH costs and low returns could soon spur a new wave of consolidation in Spain’s banking industry, where the number of banks has already dropped to 14 from 55 since the 2008 financial crisis.

A new round of mergers could take that total down to just single digits, putting the country on a par with Britain and France. It would also cut a swathe through a still bloated retail banking network that, according to the Bank of Spain, had the most branches per capita in Europe as recently as 2013.

“Business volumes are simply not high enough to sustain the sector at its current size,” Jose Carlos Diez, economy professor at Alcala de Henares University near Madrid, said.

The banks that are the most likely targets in this process are below the top tier in Spain, where Santander and BBVA, the two largest, were able to ride out Spain’s economic crisis partly because of the international spread of their businesses.

The biggest among the handful of banks now under threat is Banco Popular, senior banking sources said.

The bank is ranked sixth by domestic assets but is weighed down by low profitability and heavy exposure to property loans that turned sour during the crisis.

Popular has been racing to grow abroad, with purchases announced in the United States and others expected in Mexico or Portugal. But such small-scale deals may not be enough to prevent it being swallowed up, a senior Spanish bank executive said.