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Spanish banks focus on mergers due to fear over another economic crisis

The country’s second largest bank BBVA is mulling a possible tie up with Banco Sabadell

Spanish banks are seeking mergers as the country’s economy weakens due to the impact of the pandemic. The lenders are facing ultralow interest rates and growing competition from fintech startups.

It is reported that the country’s third-largest bank, CaixaBank and Bankia, approved a merger in September. The merger is expected to create the nation’s biggest domestic lender with an estimated worth of around $788 billion in assets.

Meanwhile, the country’s second largest bank BBVA is mulling a possible tie up with Banco Sabadell. The merger will create the country’s second largest domestic bank if the deal is successful. However, Santander will remain the country’s largest bank by assets due to its strong international presence. Other banks such as Liberbank and Unicaja have also planned to go ahead with merger talks.

The trend in mergers is not new to Spain. The country witnessed a similar situation during the 2008 financial crisis which hurt the economy on deeper levels.

Xavier Vives, a renowned Spanish economist, told the media, “These new operations are defensive to avoid problems in the future. But unlike during the previous crisis, when lenders faced a solvency problem, this time around the issue is a lack of profitability. Interest rates are low, the yield curve is very flat, and with the pandemic, revisions of interest rates have been postponed. Under these circumstances, the banking business is not very profitable.” The current situation is very critical for Spanish banks in terms of future growth and sustainability.

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