These costs refer, on the one hand, to operating expenses (employees and offices restructuring), and, on the other, to the decline in asset impairments as a result of the provisioning efforts already made and the recovery of the economic activity. I would note that the subsidiary model followed by the main Spanish banking groups for their international expansion, with high local autonomy, benefits from certain characteristics which, I dare to say, are not always well understood. To mention one of its main distinctive features: in this model, subsidiaries are autonomous in both capital and liquidity, therefore, limiting the contagion risk between the Group’s units, while benefitting from revenues and risk diversification. It is well known by markets and supervisors that this model helped the Spanish banking sector and the Spanish economy through the financial crisis. Banking business today has to face rapid technological change, new regulations, growing competitive pressure and low interest rates. These challenges are shared by many different banks throughout the world and, obviously, are not exclusive to the Spanish banking system. But now I will focus on the three main sources of pressure on the domestic income statement of Spanish banks. In the current scenario of very low interest rates, the loan-deposit gap is at historically very narrow levels (around 1%). Where the interest rate spread is so tight, the sustainability of net interest income over time needs an adequate level of activity to offset, by volume, the scant contribution of price to the income statement.

But this is not the case at present, as banking activity levels are still low, and precisely this is the second source of pressure on the income statement. The third one is the significant volume of non-productive assets (NPLs and foreclosures) remaining on banks’ balance sheets although, as I mentioned earlier, the data shows a positive trend with a significant decline over the last two years. In a period of far-reaching changes in the banking sector, it is important for banks to improve their efficiency, so as to remain viable competitors. Banks could do this through various means, for example redesigning their networks, redefining their capacity and efficiency, enhancing their geographical diversification, and increasing specialization in certain market segments. From this perspective, a number of analysts and market participants expect a greater degree of consolidation in the Spanish banking sector. The start-up of the Single Supervisory Mechanism and the gradual disappearance of barriers against banking integration at the European level facilitate a new operational framework for banks, when defining their strategies through the Eurozone and the area covered by the Single Supervisory Mechanism. 4  BIS central bankers’ speeches  Conclusions: growth perspectives Now, to conclude: According to most analysts, public and private alike, the Spanish economy is expected to continue growing at sustained rates in the medium term. In particular, GDP might increase at a rate around 2.8% in 2016 according to the consensus. This figure is well above the estimated rate for the euro area average.