Ana Botín: ‘I’m an optimist who worries a lot and I’m more worried than usual right now’
The Santander chief sees a recession coming, but thinks that banks will fare better with higher interest rates
Ana Botín is more worried than usual right now. The Santander Group’s executive chairperson sees a recession coming, but remains confident that the financial services group is ready for it. She does though acknowledge the uncertainty affecting the global economy and many of Santander’s clients. “I usually describe myself as an optimist who worries a lot. Right now, I’m a little more worried than usual,” she said at a Washington, DC event where she spoke about the urgent need to combat inflation. Botín also thinks that banks will fare better with higher interest rates.
Botín made her debut on October 13 as the new head of the Institute of International Finance (IIF), a trade group for the global financial services industry. She met with many business and political leaders in the days preceding her IIF speech, and says there is widespread agreement that inflation must be urgently addressed.
“I am very much in favor of the current measures for tackling inflation. We are facing other difficult problems, but if we don’t tackle inflation first, things will get even tougher. I have many years of experience in countries with high inflation, so I think the resolve is there. But we can’t waver on inflation because it’s an essential first step if we want to get back on the path of sustainable growth,” Botín said in a live interview during the event, where she also called on governments to establish stable macroeconomic policies.
“We have to understand that there is more uncertainty these days, which makes planning more difficult. We must stay close to our customers,” said Botín, who cited private client concerns about mortgages, rising energy costs for businesses, and geopolitical complications like the war in Ukraine. “I would say there is quite a lot of anxiety and uncertainty,” she said. “Our job as bankers is to help our clients manage all these challenges, provide the best possible advice, and make sure we can finance their needs.”
Ready for recession
Botín believes that the banking industry is in a very strong position for the future. “It’s hard to predict how bad it could get, but we are ready for the recession that will come at some point. We want to continue supporting our customers as we did during the pandemic. We don’t need to continue raising capital right now - it’s not something we think makes sense for the economy. We are well capitalized and have strong balance sheets.”
Fighting inflation with interest rate hikes can be beneficial for banking, says Botín. “As an industry, we’ve experienced seven years of negative interest rates in Europe, which is not an easy environment for doing business. The best defense against a recession is to prioritize profitability ahead of reserves, so banks will clearly do better in such an environment,” she said. “Higher interest rates represent a normalization for the financial sector. If rates go up to 3%, 4% or 5% – these are still not historically very high rates. They can provide a cushion for the financial sector, which is really important when you think about what may lie ahead.”
Botín added Santander’s markets in Latin America seem to be in better shape than other countries, especially in Mexico. “I think things will be different for Latin America this time around. They’ve done their homework and are prepared for coming events. They understand that inflation is enemy number one, number two and number three... because it really hurts vulnerable families and companies.”
Mexico, in particular, is well-placed to weather the storm. “It has very solid public finances,” said Botín. “You can see it in the strength of their currency. They got ahead of the curve and raised interest rates even before the US Federal Reserve acted. They seem to be closer to controlling inflation. Mexico is also very attractive for many other reasons: supply chain, geopolitics, proximity to the US, a very well-educated population and a great work ethic. Larger markets are trying to establish shorter supply chains, which makes Mexico a clear winner.” Despite all that praise, Santander announced a few months ago that it wouldn’t make an offer to buy Citigroup’s subsidiary in Mexico. Botín also praised Brazil’s monetary policy of aggressively raising interest rates to combat inflation.
Energy transition
Botín highlighted Santander’s efforts to finance the transition to new energy sources, and called for “coordinated, consistent and robust data” for measuring the carbon footprint of banks and their customers. “How we help our customers make this transition is important, because it’s not just about brown or green. It’s about how to move from brown to green. And that requires financing and planning, which are core capabilities for banks,” she said.
Botín believes that the war in Ukraine has been a huge wake-up call about the need for reliable energy sources, and says that energy must be renewable, reliable and affordable. “We have to get the right balance between those three things,” she said, “so while we want to invest more in renewable energy, ironically enough we’re going to have to make more short-term investments in fossil fuels.”
Fair competition
Santander’s chief was critical of the current regulatory environments in many countries. “A strong economy needs a banking sector that is vibrant, innovative and prepared for the future,” she said. “We need to innovate and offer new products and services to our customers, who want everything cheaper, faster and provided with better service. Innovation is key and we cannot lag behind, but we have faced and continue to face very inconsistent regulations.”
Botín cited payment systems as an example. “Banks accept deposits and lend money, but we also offer payment and other services. In Europe, payment service providers are regulated differently than banks that provide exactly the same service and have the same operational risks.” The other glaring examples are data services and taxation regimes. Botín appealed for fair competition and transparency. “Fair competition has eroded because the lines between business sectors have blurred. We need a regulatory framework that is robust, consistent and equitable.”