The global economic crisis has hit the Spanish banking sector, with the deeper impact becoming apparent in the first quarter of 2009. This motivated enhanced competitiveness among national and local banks to draw customers to support continued monetary injection. Effective customer service in the context of the economic crisis is important in retaining bank depositors and encouraging new customers to transact with the bank.
The economic crisis has affected the Spanish banking sector differently when compared to the banking sectors in other European countries such as the United Kingdom. Until the end of 2008, there were no major problems in the Spanish banking sector unlike the succession of bankruptcies of banking and financial institution and the massive bail out plans of central banks in the United States that spread through Europe. This was a relief for Spanish banks since the claims of analysts that the Spanish banking sector would experience the worst effects due to heavy reliance of banks on external financing leading to a high level of exposure to the property market crisis. (Ordonez, 2008)
The reason purported for the resilience of the Spanish banks is the difference in balance sheet characteristics. Looking at the balance sheet of the ailing or failed banks in Europe shows assets that have incurred heavy damage while the financing of liabilities are gone entirely because of the heavy exposure to risky investments in the property market.
The better situation of the balance sheet of Spanish banks explains the lesser adverse impact of the global economic crisis to the Spanish banking industry. (Ordonez, 2008) This reflects on the management decisions followed by Spanish banks that in turn express the manner of investing customer deposits. The resilience of a bank in times of crisis reflects on customer service and affects customer perceptions of the bank.
In relation to liabilities, it is true that most of the large Spanish banks heavily relied on external financing, particularly from the wholesale markets. However, the difference is the preference for medium to long-term maturities relative to the massive involvement in short maturities of a number of banks in other European countries.
This created a more secure or less risky liability structure even if this required higher costs. In addition, the involvement in wholesale markets also encompassed diverse instruments such as securities backed by assets. (Ordonez, 2008) This involved two important management decisions. One is the preference for longer maturities. The other is engagement in diversified investments to spread risk.
Although the banks got involved in securities backed by its assets similar to the other banks in Europe, there are differences in the nature of the securitisation. One distinction is the better quality of the security portfolios of most Spanish banks. The other distinction is the intention for the securities as investments instead of as a means of transferring risks as the heavily hit banks in Europe did. The intention of the Spanish banks was to bring in funds. Moreover, the prudential regulatory practice implemented by the Spanish banking sector implied that the Spanish banks are unlikely to establish conduit banks that would complicate their balance sheet structures. (Ordonez, 2008; Sabuco, 2009)
It is also worth noting that the Spanish banking sector maintained deposits as its financial base by focusing on retailing investment products. Much of the assets of the banks in Spain came from the sales of insurance to individuals and business firms, plus savings. (Ordonez, 2008) This enabled banks to gain a stable source of financing.
As the global economic crisis hit banks in Europe, some banks in Spain experienced the effects based on engagement in some risky assets but the diversification to longer maturity investments and a strong deposit base led to the retention of a substantial value to back liabilities.
With regard to assets, investment decisions have not focused on those that caused significant problems for other banks in Europe. Although, there is an increase in doubtful assets for a number of banks as the global economic crisis hit, the attribution is more strongly on occurrences in Spain’s economy that could fall within the normally occurring banking cycle (Ordonez, 2008). Despite the existence of doubtful assets, the remaining bulk remains as quality assets because of the strong focus on household and business savings and insurance deposits.
Asset management is primarily traditional in the Spanish banking sector based on risk control practices (Ordonez, 2008). Traditional then takes on a positive conceptualisation by representing long-established effective practices including responsiveness to change. Spanish banks have retained practices that work and practice flexibility in other areas including product innovation by introducing electronic banking options and data mining (Hui & Jha, 2000). In managing assets, the risk taken is controllable through diversification to spread risks and preference for longer maturities to minimise risks involved in short-term maturing ventures. (Sabuco, 2009)
The balance sheet structure of most banks in Spain has several implications on its customers. One is the prudential management of the savings and deposits of customers resulting in the ability to secure these savings and deposit while at the same time ensuring reasonable returns. Stability of the financial structure of banks affects customer perception and represents a form of customer service. Another is the ability to build closer relations with customers required in strong dependence on savings and insurance deposits.
This situation of the Spanish banking sector remained the same throughout 2007 and 2008. In the first quarter of 2009, the brunt of the global economic crisis on Spanish banks deepened resulting to the difficulties in one regional bank, the Caja de Ahorros Castilla La Mancha (CMM). Before the end of March 2009, the central banks took over management of the bank. This constituted the first take over since the global economic crisis as well as the only recorded take over since 1993. The bailout program for CMM involves guaranteed loans from the central bank to replenish its balance sheet. (Montia, 2009)
This constituted a deviation from the positive trend in the performance of banks in the previous years. The performance of the leading banks still reflects the overall resilience of the Spanish banking sector. However, the fall of Spain’s property market inevitably exposed some regional banks to risks, which led to serious problems in the case of CMM (Montia, 2009).
There is uncertainty over the current and expected developments in the state of the property market in Spain because of fragmented information. This constitutes a risk for other banks likely exposed to the problems of the property market. Nevertheless, apparent trends in the property market shows that the price of real property is on a decline since March 2009. If this continues, the risk for banks to experience credit quality decline because of mortgage payment problems taken together with increasing unemployment would escalate.
This comprises a concern for customers, as it is an issue for banks. Low credit quality means that real property owners may not be able to meet mortgage payment obligations with banks. The extent of the property market problem including other incoming situations would determine the liquidity of banks and the security of the savings and deposits made by customers.
Another development in the Spanish banking sector is the call for the more encompassing intervention of the central bank in cleaning the balance sheets of other banks starting to experience credit quality problems and in regulating the restructuring of the banking sector. This call comprise a contingency for the worst case scenario with the further deepening of the impact of the global economic crisis on Spain and the Spanish banking sector. The central bank holds a €7 billion deposit guarantee fund reserved in case banks would need bailouts and in the event of restructuring of the
One advocate of the contingency plan for the banking sector is Banco Bilbao Vizcaya Argentaria (BBVA), the second biggest bank in Spain resulting from the merger of banks with more than a decade of experience. Although the bank is confident over its ability to withstand the further deepening of the impact of the global economic crisis, it also experienced its share of the ripple effect. BBVA experienced a decline in profit for the last quarter of 2008 by 24 percent when compared to the same period in 2007.
This led to the decision to limit dividend payouts in order to retain capitalisation as a prudential response to the situation. The limitation in dividend payout involves a decrease to 30 percent in 2009 from 45 percent in 2008. (Mallet, 2009) This decision has an impact on bank shareholders but implemented to soften the impact on depositors.
Nevertheless, announcements of a decrease in profit and limited dividend payout indicate issues faced by bank, which also become issues of banks customers. This requires effective and context responsive customer service to provide accurate information to potential customers as well as to existing customers of the bank. Customers would continue trusting the bank in developing a positive perception towards the reliability of its customer service.
Having an effective customer service in the context of the deepening impact of the global economic crisis is important. Customer service activity of answering an inquiry on whether the bank is experiencing a problem involves skill because this is not actually simply answerable by a yes or no. There is always a qualification to the answer because of many factors that could affect the decision to engage the services of the bank and the manner of delivery is important. Nevertheless, this should be a primary priority for BBVA, which operates with the vision to work towards bettering the future of people. The corporate culture of the bank adheres to seven governing principles, one of which is operation as a customer centred business. (Gruppo BBVA, 2009a)
Determining the effectiveness of the customer service of BBVA is of interest to understand how well the customer service of the second largest bank in Spain deals with its customers in the context of the likely deepening impact of the global economic crisis. Doing so would generate insights on the importance of customer service in the heightened competition and risks faced by banks in the uniquely placed banking sector.
Of further interest are the similarities and differences in the customer service of BBVA with another bank in another European country hit by the impact of the global economic crisis, specifically Barclays in the UK. This would provide insights on the effectiveness of customer service in the banking sector in two different countries commonly experiencing the global economic crisis but with varying impact on the banking sector.