- "New players rely on Cecabank for payment processing, derivatives or Swift", says its CEO.
- He expects volatility to create opportunities for foreign investors: "There may be divestments in equities and profitability in fixed-income".
Under his leadership, in just ten years, its CEO, José María Méndez, has managed to consolidate Cecabank's business model, based on providing services to other financial institutions, leading the securities depositary and custody market in Spain and Portugal.
How will the economic slowdown, the war and the rise in interest rates affect the economy?
In a context of great uncertainty, the persistence of the war [in Ukraine] has a very clear impact on prices, especially energy prices. Inflation will continue to force central banks to maintain orthodox monetary policies and this will push many Western economies into recession. Last week the IMF announced that at least one third of the world's economies will fall into recession in 2023. This will influence all businesses. Even if the US, Europe or China do not fall into recession, they will experience much more moderate growth, and they are the engines of the world economy. This will influence consumption.
And in your business?
As we are in the business of being custodians and depositaries of investment funds, we estimate that equity holdings will be maintained this year. We do not expect a reduction, as took place in 2022. We see fund managers adapting to this new interest rate environment and creating products in line with the yields that sovereign debt is offering.
Cecabank has become the benchmark custodian bank in Spain and Portugal. Why is it so successful?
Cecabank was founded with an innovative business model. We do not market products, we do not engage in retail banking, but rather we provide services to market stakeholders: credit institutions, banks, savings banks, credit cooperatives, as well as collective investment fund managers, pension fund managers and venture capital funds. We work with very demanding customers and this is only possible with the effort and commitment of our team. In only ten years we have become the Iberian leader in custody (of fixed-income assets, equities...) and depositary (of investment funds, pension funds -in their Basque form, the Voluntary Contribution Pension Schemes- and venture capital funds). When the bank was founded, we had €94,000 million worth of assets under custody, and now we have €297,000 million.
You are also strong in payment processes and treasury & global markets. How are these areas doing?
We are a global provider of payment services to the domestic market. We provide card services, Bizum, instant transfers, SWIFT payments and representation in clearing houses. In this area, we have several partnerships with international providers, such as Visa or Cardtronics, which is bearing fruit both in Spain and Portugal. In means of payment, the number of annual card transactions processed has doubled in ten years, from €500 million in 2012 to more than €1,000 million in 2022. The volume of daily debits and credits in Target2 (European securities settlement) has increased from around €3,000 million in 2013 to €20,000 million today.
Instant transactions have skyrocketed...
Bizum is a very successful solution, showing that cooperation within the financial system works. Instant transactions are increasing because an increasing number of banks have embraced it and because it is widely used by users. The challenge is to find a European solution compatible with Bizum. For large segments of the population, it may be the first step in this relationship with online banking, an opportunity for Spanish digitalisation.
Are you analysing acquiring another bank? Entering another market?
We are open to growth through acquisitions, but what we seek is to accompany our customers. If they expand abroad, we will go with them. We are considering other international possibilities.
What can you advance in terms of the overall results?
Banks that provide custodian services tend to have higher solvency ratios than retail banks. We have one of the highest solvency ratios. This gives our customers peace of mind. From a core capital ratio of 13.8% in 2012, we have moved to a CET1 of 30.1%. In 2012, we closed the financial year with a result of €34.6 million, a figure that is expected to double in 2022. All this has led to an upgrade of our credit rating from BB+ to BBB+.
Are you concerned about fintechs, can they gain market share? Our business needs critical mass, volume because commissions are low. Rather than competition, we seek to collaborate with them. We have customers who are niche banks and fintechs, who want to outsource their back office, we support them in payments, in clearing house representation, derivatives and Swift. Neobanks cover the last mile but they don't have the above infrastructure and rely on us for that.
You have been sponsors since the inception of Spain Investors Day. What does this forum represent?
This is an event that marks the start of the financial year in Spain. We hope it will shed light on investors' decision-making. Long-lasting business relationships will emerge from it. There are going to be opportunities for investors, there may be disinvestment in the stock market and profitability in fixed-income. We participate as an Iberian Securities Services hub and market maker in Spain. We are a leading platform in many segments such as derivatives in index-based organised markets, Spanish equities and currency futures (xRolling). This offer is completed with execution and settlement. We are part of the network of market creators of the Spanish Treasury and the European Commission for the placement of debt to finance the Next Generation EU programme.
Crypto-assets are under serious scrutiny. How do you feel about the digital euro?
The most interesting aspect is the technology behind it. In Cecabank's strategic plan, digital assets feature as an area to be explored with caution. The digital euro will be defined by October 2023. It is a step forward in strengthening the single European currency. This digital euro will compete with other digital, sovereign and possibly private currencies. A lot is at stake here as a country and as a continent.
