This is the first step toward a new normal, explained Santander CEO Javier Marín yesterday after unveiling the bank's third quarter results. The CEOs of Bankinter and Sabadell, Dolores Dancausa and Josep Oliu, also presented their quarterly earnings reports. Jointly, the three banks boosted their earnings by 70% year-to-year.
All the banks would like to forget last year. The sector went through a massive cleanup to get rid of toxic real estate assets and build provisions. The banks put their resources into this cleanup effort, which lowered their profit margins. Even though Spanish banks were also required to build refinancing provisions in 2013, the quantity of provisions was much smaller and the economic climate was much more favorable.
In fact, profits this year come mostly from more relaxed provisioning requirements. Traditional banking business -- paying interest to clients who keep their savings deposits at the banks -- has still not recovered. Earlier this year Luis Maria Linde, the Bank of Spain's governor, also put limits on the interest rates that banks can pay on cash deposits, which caused savers to withdraw their money from conservative cash deposits and invest them in other kinds of funds. Even though all three banks agree that profits will keep rising significantly in 2014, they believe that we will not see a new normal anytime soon.
Marín insisted, as Botín did in New York, that now the wind is in Spain's sails and the nation could start to see GDP growth exceed the government's 1% prediction. Perhaps, this quarter's banking results are a pickup note to Spain's economic recovery.
