Merger between Caixa and Novobanco creates public giant with almost a third of the market
A joint entity would manage more than 100 billion in deposits and would have a credit portfolio of around 75 billion, giving it the control of around a third of the banking market in Portugal.
A possible merger between Caixa Geral de Depósitos (CGD) and Novobanco would give rise to a public giant with almost a third of the market share in deposits, but also in loans to families and companies in Portugal.
The governor of the Bank of Portugal warned on Wednesday of the “systemic consequences” that such a deal could have on the already highly concentrated national banking market.
“Caixa is a very important bank, but that also brings responsibility. It’s a business decision with systemic consequences that have to be analysed”, said Mário Centeno in an interview with Reuters, preferring a solution for Novobanco that goes through the stock market via an IPO. This would be “a good result for the functioning and competitiveness of the banking sector”, he admitted.
The scenario of Caixa going ahead with the takeover of Novobanco has intensified in the last week, with the Portuguese Finance Minister, Joaquim Miranda Sarmento, opening the door: “If Caixa decides to make this assessment in the light of situations that may occur in the future, the government will then make decisions based on this assessment”.
The numbers
Caixa is already the market leader in Portugal. Particularly in deposits and mortgage lending, markets in which it currently has more than a fifth of the market share, according to the most recent data released by the banks (September 2024).
In other words, the acquisition of Novobanco would further strengthen the public bank’s leading position in these segments — if the operation goes through without the imposition of remedies by the Portuguese Competition Authority.
A ‘super public bank’ would manage more than 100 billion euros in deposits, with a market share of more than 32%. And its credit portfolio would exceed 37 billion, corresponding to a share of around 32%.
Also in corporate lending, where Novobanco maintains the DNA it inherited from Banco Espírito Santo, ‘super Caixa’ would become the undisputed market leader, with a portfolio of more than 37 billion euros and a share of more than 30%.
Well behind would be the current market leader, Santander Totta, which has a share of around 19%, and the rest of the banks.
‘Spanishisation’ of banking?
The same situation of market hegemony would occur if Santander were to go ahead with the purchase of Novobanco. Totta would also control a market share of over 30% in home and business loans. In deposits, however, Caixa would retain the lead.
A scenario (also widely speculated) in which BPI took over Novobanco would also result in one of the big banks in Portugal, but competing toe-to-toe with rivals in the different market segments. For example, in deposits, Caixa and BCP would still be bigger. In mortgage lending, it would take the lead away from the public bank, but by a small margin.
What is certain is that in either case (Santander or BPI) the banking market would see a significant increase in the Spanish presence.
Concentration eases, but could increase again
According to European Central Bank statistics for the end of 2023, Portugal has a concentration level of 71.52%, i.e. more than seven euros per ten in assets are concentrated in the five largest banks operating here.
These figures place Portugal in 14th place among the most concentrated banking markets in the European Union, where the average degree of concentration of assets in the five largest banks is 68.6%.
Since at least 1999, the Portuguese system has seen an upward trend in the degree of concentration. It went from 44% that year to 73.9% in 2021, when it reached its peak. It has been easing over the last two years, but if Novobanco goes into the hands of a direct rival, be it Caixa, BCP, Santander or BPI, the degree of concentration will jump again.