Stay local, act fast: tiny Spanish bank offers survival manual for Italian peers

Wed Jul 27, 2016 11:21am EDT
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By Jesús Aguado

ONTINYENT, Spain (Reuters) - The patient had made an appointment to see the surgeon at his consulting room in the local hospital, but when he arrived, he told Dr Antonio Carbonell he wasn't actually unwell. He wanted to talk about his mortgage.

Carbonell works as a surgeon in the small Spanish town of Ontinyent near the Mediterranean coast. He also happens to be chairman of the town's tiny savings bank, Caixa Ontinyent.

"He wasn't sick. But we are so close to our clients here that he had booked an appointment at the hospital to see the banker, not the surgeon," said Carbonell, relating the story as an example of the extreme localism that kept Caixa Ontinyent alive.

Out of more than 50 small savings banks in Spain, known as cajas, Ontinyent is one of only two that survived the country's banking collapse of recent years.

It did so by retreating from wholesale funding markets, withdrawing efforts to attract new business, focusing on its existing client roster of mostly small savers in its home town, and ploughing its profits back into covering for bad loans.

Today, Ontinyent is thriving. Profits were up 24 percent in the first quarter of this year after growing 13 percent last year. Though its network of 49 branches would barely be noticed by a giant competitor with thousands of branches like Santander (SAN.MC: Quote), it has slowly begun opening more.

Now, with Spain's banking trouble being repeated in Italy -- a bigger country with an even bigger problem of bad loans and an even larger proliferation of tiny local banks -- Caixa Ontinyent's success is drawing new attention from those wondering whether its formula can be repeated.

It has a simple message for bankers at small Italian lenders in a similar predicament: stay local, serve your clients and act quickly to fix your balance sheet.   Continued...

An employee talks to a customer at a branch of savings bank Caixa Ontinyent in Ontinyent near Valencia, Spain, June 9, 2016. REUTERS/Heino Kalis