Spain consolidates its position as the large euro country with the highest concentration of banks

Spain not only continues to outperform the rest of the major economies in the eurozone in terms of banking concentration, but it has also increased it, albeit slightly, in the last year, according to the latest data from the European Central Bank (ECB) for the year 2023.

This increased concentration is known in the midst of the BBVA's takeover bid for Banc Sabadell, which raises doubts about its effects on competition. Sabadell's management and the Government believe that the integration would have detrimental effects on competition, while BBVA disagrees, convinced that the bank will not exceed a 25% market share or add more than 10 points to the current percentage.

To measure the level of banking concentration, the ECB uses the Herfindahl index as a reference, which assigns a score between zero and 10,000 points. It is calculated by squaring each participant's market share and summing all the results. A market with a single operator in a monopoly regime and a 100% share would reach 10,000 points, while a highly fragmented market would yield much lower results.

According to the latest data from the ECB, Spain closed 2023 with an index of 1,331 points, much higher than Germany's 323 points, France's 567, or Italy's 716. Among the eight countries with the highest GDP in the eurozone, only one, the Netherlands, surpasses Spain.

During the last year, there has been a slight increase in the index used in the sector, the Herfindahl index

As a reference, the ECB sets 1,800 points as the threshold from which concentration may be considered high, although several countries in the Eurozone already exceed it. This exercise does not affect the analysis already conducted by the central bank to give its approval for BBVA's acquisition of Sabadell, in which it considers solvency criteria.

This year's results in Spain are slightly higher than the 1,327 points from the previous year. For the past two decades, except for 2020, the level of bank concentration has been increasing year by year, despite the emergence of neobanks and some foreign entities. Last year, the largest consolidation operation was the acquisition of Targobank by Abanca.

The ECB also focuses on a second indicator to measure the level of concentration in each country, which consists of adding up the market share of the five most prominent entities in the market. With 69%, Spain is also ahead of Germany, where the percentage is 33%, and France and Italy, with figures of 45% and 49%.

However, in this case, the percentage in Spain is less than 70% from 2022, when it reached its peak, at least since the introduction of the euro. In 2006, the five main banking entities accounted for a market share of 40%.

The ECB's analyses do not address the degree of concentration in different regions of the country, a aspect that the CNMC is indeed analyzing and which, in the case of BBVA and Sabadell, highlights Catalonia and Valencia as the regions most susceptible to competitive effects. Its president, Cani Fernández, has stated that they will look at “postcode by postcode” to assess this aspect.

The weight of major operators is increasing despite the emergence of neobanks and foreign entities

BBVA's forecast is that the merger of the two entities will result in a 22% market share in loans in Spain, a 20% share in deposits, and a 17% share in branches.

The process is pending CNMV approval of the takeover bid prospectus. In parallel, the CNMC must decide whether to resolve the process in phase one or to move it to phase two, which would open up a more in-depth analysis, with the possibility of third-party allegations and the Government being able to impose conditions.