Spanish savings bank Caixa Ontinyent is a survivor. In fact, it is the only one, apart from a small entity in the Balearic Islands, of a network of Spanish savings banks that numbered nearly 50 before the 2008 financial meltdown.
“We have confronted the downturn by cutting costs and reducing the number of branches and staff levels,” says Vicente Ortiz, a director of Caixa Ontinyent. “This has brought an improvement in productivity. Our capital level is high at 16.7% and we have provisioned 98% of our non-performing loans [NPLs]. As a savings bank, we do not have shareholders. Our customers are families and small and medium-sized enterprises, so we are not under investor pressure to deliver a high return on capital.”
Significant role
Mr Ortiz highlights what he considers the savings bank’s historic role in the Spanish economy. “For the past 150 years, this institution has been the country’s driving socio-economic force, especially in rural areas,” he says. The structure of the board differs from that of retail banks in that of its nine members, four are elected by the general assembly (similar to the annual general meeting) and five are independents.
Caixa Ontinyent struggled to overcome external pressures to join the Spanish savings bank merger process, as well as internal uncertainty over the country’s economic future, a ferocious level of competition and aggressive pricing, all of which took its toll on profitability and customer confidence. The bank tackled the downturn, which saw even large institutions such as Banco Popular disappear from the market, by retreating from wholesale funding markets and focusing on its existing client base of mostly small savers in its home territory.
Mr Ortiz explains that the bank’s strategy before 2008 was focused on growth, sales and new business opportunities. The crisis that hit the Spanish banking sector was largely fuelled by exposure to the property sector. “From 2008 onwards there was a shift in strategy, by which the emphasis was placed on containment and caution,” he says. “We took this message to people inside the bank as well as our customers.”
Another measure deployed to ensure the bank’s survival was the decision to place a portion of its profits in an insurance fund against losses, at a time when NPLs were rising to as much as 10% of its total portfolio. That said, Caixa Ontinyent had relatively limited exposure to the higher risk end of the real estate market. Almost all of the bank’s investment portfolio was allocated to financing customer businesses and residential property, much of this under government protection.
Merger unlikely
For now, Caixa Ontinyent does not feel compelled to partake in the merger process that has dramatically cut the number of Spanish savings banks. “There is no political pressure to merge with another entity, nor are we under pressure to expand the business,” says Mr Ortiz. “I would says that a merger in the medium term is highly unlikely. What I can say with confidence is that if another downturn is on the horizon, we have been here for 135 years and have managed to evolve with a changing society.”
The bank’s three-year strategy plan for 2019 to 2021 was designed taking into account the current economic environment. The group considers the outlook favourable over the short to medium term, with the Spanish financial system now better positioned to confront a crisis.
“We are working on our digital platform, which opens new markets and reduces costs,’ says Mr Ortiz. “We offer the same services as large players, but as a savings bank several things distinguish us from the retail sector. We set aside a significant part of our profits for social projects involving schools, disability centres, retirement homes and the like. We also have a presence in towns of fewer than 1000 inhabitants, which takes us close to our customers.”
Caixa Ontinyent currently operates 48 branches in 31 towns in the Valencia region. The bank is concentrated on maintaining a close relationships with existing small savers, who make up its portfolio of some 100,000 customers, a number that has grown by nearly 10,000 since the crisis erupted. In this 10-year period, deposits have risen by €100m to a current level of about €800m. Mr Ortiz says that the success of the bank’s strategy is reflected in 2018’s net profit, which rose by 5% to €6.5m. The upwards trend has continued in 2019, with a 24.12% increase in net profit in the first quarter to €2.2m.
