Future transactions in Spain’s already-consolidated banking market will take time and diplomacy to execute, according to sector dealmakers in the country.

BBVA’s EUR 17bn attempt to acquire Sabadell, which failed in October, demonstrates the pitfalls of pursuing transformational bank M&A in Spain.

But there are still banking deals to be done in the country, Ildefonso Arenas, banking and finance partner at Pérez-Llorca, told Dealspeak.

“Spain already has a very consolidated banking market, but we will continue to see a handful of deals in the medium term and long term,” Arenas said.

Much of the focus for the final stages of consolidation will be on medium-sized institutions outside of the four systemically important banks: Santander, BBVA, CaixaBank and Sabadell.

“Under the current landscape, deals can happen, but would need to cook slowly and with care,” according to Carolina Albuerne, Madrid-based partner with Uría Menéndez.

Medium-sized banks tend to focus on their own regional territories and have controlling shareholders, she added.

BBVA’s bid for Sabadell would have been the largest bank deal ever recorded in Spain had it been completed, according to Mergermarket data.

The largest completed deal was agreed as far back as 1999, when Santander acquired Banco Central Hispanoamericano for EUR 14.3bn.

Sector deals since then have been announced sporadically, with only a handful of meaningful combinations agreed during the period.

These larger transactions have been interspersed by government-brokered rescue deals and consolidation among the country’s smaller banks.

Spain had 204 deposit-taking institutions in 2005, before the credit crunch that began in 2007, according to the Bank of Spain. The country now has 126 institutions with banking licenses, including 80 foreign banks.

Consolidation among Spain’s smaller banks has been driven by the need to deal with loans that soured following the collapse of Spain’s property market in 2008.

Many of Spain’s savings banks, which had a political element to their governance, had granted generous mortgages while thinking more about regional development than solvency.

As a result of the shock, Spain’s savings banks professionalised by creating new banking platforms, while turning themselves into foundations that control banks.

Many of the first wave of platforms merged. One of the country’s big three banks, CaixaBank, has its roots in this process. Its predecessor, La Caixa, was a leading savings bank.

“The Spanish banking market is already fairly concentrated after an intense consolidation process following the global financial crisis,” Albuerne said.

High-hanging fruit

Medium-sized banks that could offer consolidation opportunities all have their roots in the country’s pre-crisis savings banks.

The three likeliest to cut deals are Abanca (an IPO candidate based in Galicia), Ibercaja (an unlisted bank from Aragón), and Unicaja (a listed bank from Andalucía), dealmakers said.

Sabadell, which moved its headquarters back to Catalonia as part of its BBVA bid defence, could also play a role in the next phase of consolidation.

And Kutxabank, a fiercely independent unlisted bank from the Basque Country, could also have a role to play.

“Hostile bids are unlikely to be a feature of the market, particularly since the remaining medium-sized banks tend to have controlling shareholders with majority stakes,” Arenas said.

“Although the former savings banks have professionalised over the last decade, there are still some legacy political elements to their governance, which can act as a brake on deals.”

Despite the issues, the market logic for further consolidation, based on cutting costs and increasing scale, remains unchanged, Arenas said.

The business case might be clear, but the timing of the remaining deals could be tricky, dealmakers said.

“Bank consolidation tends to be easier in times of crisis or when the sector has been outperforming,” Albuerne said. “We are at the beginning of a new cycle that will eventually lead to more consolidation.”

Spain’s banks have benefitted from a period of interest rate normalisation after a long period of zero and negative central bank rates, according to one Madrid-based banker.

There will be more demand for M&A when the current cycle comes to an end, this banker added.

With the low-hanging fruit now long gone, banks and their advisers will need to be nimble and strategic to execute further banking deals in the country.

A Unicaja spokesperson said the bank is focused on its 2025-2027 strategic plan.

A Kutxabank spokesperson said that its 2025-2027 business plan is based on organic growth.

Abanca declined to comment.

Ibercaja and Sabadell did not respond to requests to comment.