What is your perception of the economy in 2020?
The 2020 financial year was undoubtedly marked by the pandemic, an absolutely unforeseen global event with a profound impact on our economy. Because it was so contagious and life threatening, the authorities were forced to restrict mobility and social interaction. In Spain, they resorted to applying the state of emergency twice, once in the first wave and another in the second, to back up these restrictions from a legal standpoint. These were very tough measures, although they were also inevitable in order to reduce the number of infections, pressure on the healthcare system and, ultimately, the number of deaths.
The impact on the economy was brutal, with drops in activity never before seen in our recent history, and which were especially significant in sectors such as tourism, hospitality and retail. Sectors of great importance in our economy. Together with the fragility of our production structure, which had not yet fully recovered from the 2008 crisis, it only exacerbated these effects. We saw a sharp decline in the main indicators, with unprecedented falls.
What is your opinion of the measures adopted by the authorities to mitigate the economic consequences of COVID-19?
The situation was so serious that it forced the implementation of shock measures aimed at mitigating the impact of the crisis both on families who were in a situation of greater vulnerability, and on companies in particularly affected sectors. Basically, there were two types of measures. First, temporary employment adjustment programmes designed to relieve companies of their personnel costs until the reactivation of their respective markets. Second, backing by public guarantees of corporate financing granted by financial institutions. Although they did not stop many Spaniards going through and still going through a really hard time, these are all measures that have at least made it possible to alleviate the consequences of such an unfavourable situation.
What has been the contribution of banks in this context??
Given the difficult environment we faced, our main obligation was to maintain corporate financing as much as possible, to avoid their financial asphyxia, facilitate liquidity for particularly vulnerable families and strengthen our balance sheets in the face of macroeconomic downturn, anticipating a potential increase of the NPL ratio.
With regard to credit, I sincerely believe that we have managed to prevent the illiquidity stemming from a lack of income from becoming a generalised crisis of business solvency, and its potential effects on our economy. Also, the strong provisions made by banks against their results have led to strengthened balance sheets. And this allows us to face any future worsening of the situation with guarantees. We must also add that banks have gone even further than the government as refers to helping businesses, the self-employed and struggling families to meet their repayment obligations, extending the government-established moratoriums and relaxing the conditions for access. Banking is undoubtedly an inseparable part of the solution to this crisis.
Do you think we will soon begin the journey to recovery?
That's what we all hope, but it's not going to be easy or quick. Vaccines allow us to be somewhat optimistic, and it is likely that when a sufficient portion of the population has been inoculated, we can gradually return to normality. Now, it is one thing for us to lead a fairly normal life again and another for the economy to regain the momentum it had before the pandemic. Despite the efforts made, much of the production structure has been broken and it will take time to rebuild it. Macroeconomic indicators may soon look more favourable. Regaining the levels of wellbeing we enjoyed before the coronavirus broke out, on the other hand, will take considerably longer.
Do you learn from all crises?
Certainly, although sometimes it is a very hard learning process, as happened in the 2008 crisis. We emerged from it with a more solid financial system, subject to more rigorous regulation and with a centralised European supervisory mechanism. But many banks fell by the wayside and others were diluted into larger clusters, amid a notable overall decline in the sector's installed capacity, facilitated by digital transformation. A transformation strongly boosted during the pandemic, not only in banking, but in the economy as a whole, and whose most popular face is teleworking. I am sure that this phenomenon will have a positive and lasting impact on productivity and the competitiveness of companies, with the consequent benefit for the economy as a whole.
But Bankinter was already highly digitalised ...
That's right. We have been working on it for many years and we have always been ahead of the sector in terms of innovation. Our customers are used to operating remotely through the various channels we offer them, and this has made their relationship with the Bank less affected by mobility restrictions. In fact, more than 90% of the Bank's customers operated digitally before the pandemic, either exclusively or alternating with the more traditional channels. EVO, included in 2019, also played an essential role due to its innovative approach to the business, which is helping us to further leverage new technologies to provide an ever better service.
What was 2020 like for the banking system as a whole?
Apart from facing the consequences of the pandemic, the sector had to keep learning to live with an environment of low interest rates that forces us to look for new sources of income. As I have said here on other occasions, taking money from some customers and lending it to others, and nothing else, is not longer as profitable as before. We need to continue designing high value-added products and to further develop personalised advice, for which, at least at Bankinter, we have highly qualified professionals. If innovation has always been important, now it is simply essential, together with a rigorous risk policy that avoids the excesses of other times, the consequences of which are well known.
Was the 'recommendation' not to pay out dividends in 2020 very harmful?
One only has to look at the sector's unfavourable performance in the stock market throughout the year to understand the impact of this decision by the European Central Bank. Even today, the market does not reflect the true value of banks, and this has a lot to do with the flight of investors after the ban on dividends. We can understand the substance of the matter: the need to strengthen the capital of banks in case there is an upturn in non-performing loans derived from the coronavirus crisis. However, we do not share the indiscriminate nature of the decision. It should have been studied case by case, because we are not all the same or in the same situation. We could have continued with our plan of paying out 50% of our profits as a dividend without any problem. That said, banking is a regulated sector, and at Bankinter we comply with the instructions given to us. Now, I am sure that, once the restrictions on dividends are lifted, our stock has a clear upward path, simply because of the power of our business model.
What do you think of the new round of mergers and its likely impact on employment?
Each institution has the right to choose its future and, if you believe that your future lies in joining another, you are right to take that path. Bankinter's strategy is different: we are committed to independence, organic growth and specific purchases of businesses that can be complementary to ours or that can open up new horizons, as were the cases of Portugal or Ireland and EVO. Also, mergers tend to have a cost in terms of employment, and Bankinter is firmly committed to maintaining its jobs and even increasing them when circumstances permit. Especially after our professionals were such a great example of effort and ability to overcome the odds during the pandemic. We need all of them to overcome this dire situation.
How do you see Bankinter's last financial year?
Without going into details that should be provided by our CEO, I think the 2020 results were more than acceptable, given the circumstances. We continue to grow at a good pace in all our operations, once again reinforcing capital adequacy and keeping non-performing loans at bay. Excluding the extraordinary provisions to cushion the impact of the COVID-19, the profitability in terms of RoE would have been higher than 10%, clearly above the cost of capital. The full integration of EVO also took place throughout the year, and this represented a notable boost to its mortgage activity, with growth of around 30% in loan volume and number of customers. We are sure its integration into the Group, as with the businesses in Portugal and Ireland, will bring us great satisfaction.
And what are the plans for Línea Directa?
The decision to go public is firm, because it benefits the Bank, the shareholders and the insurance company itself. Línea Directa is more than ready to fly alone, after having consolidated a model of direct insurance distribution much more powerful than the traditional model and that has made history in a sector subject to profound transformation in recent years. Our wish is for the company to start trading before the summer, under the expected conditions.
Has the pandemic changed Bankinter's commitment to sustainability in any way?
Sustainability criteria are an essential part of our way of understanding the banking business, they are already in our DNA. This was recognised internationally when Bankinter was included in such prestigious indices as the Dow Jones Sustainability Index Global or the FTSE4Good. But these recognitions are not the end or a goal in themselves. They are an incentive for our organisation to continue excelling in social, environmental and corporate governance, while also producing strong financial results every year.
As a consequence of our commitment to sustainability, Bankinter reached one of the great milestones of its Climate Change Strategy in 2020: to be completely carbon neutral. The Bank was already carbon neutral in Spain, and last year achieved the same status at its facilities in Portugal and Luxembourg. The Bank offsets its direct emissions by collaborating in the conservation of the Madre de Dios area in the Amazon, and all electricity it consumes comes from renewable sources.
In 2020, we were also proud to join the United Nations Environment Programme specifically dedicated to the financial sector and signed the Programme's Principles for Responsible Banking, which aligns our industry with the Sustainable Development Goals and with the Paris Climate Agreement. Bankinter has been working in these areas for years. It has already incorporated sustainability criteria into processes such as supplier approval and the granting of financing to companies.
In line with these criteria, the Bank launched its first green bond issue in January 2020, amounting to 750 million euros, for projects related to renewable energy and environmentally-friendly construction. The demand tripled the supply, which reflects how well it was received. In November, Bankinter put a pension plan on the market that will invest between 50% and 75% of its assets in equity assets of companies around the world that respect the most demanding environmental, social and corporate governance standards.
What activities were performed by the Foundation in 2020??
Although with the difficulties inherent to such an adverse environment, the Bankinter Innovation Foundation kept running its various programmes, which aim to promote knowledge of technological change and its consequences and of new social and business trends (Future Trends Forum), as well as how to promote entrepreneurship among students in their last years at university (Akademia), and support companies in their initial phases (Startups) or growth (Cre100do). The Foundation, a world pioneer in its class and an undisputed leader in innovation, promoted the creation of the Startup Ecosystem Observatory in March 2020. The observatory makes relevant information available to entrepreneurs so that they can have a clear view of the ecosystem and help with decision-making. It is already being a very useful tool for the Company.
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