The Bank of Spain warned this Tuesday that a worsening economy in the coming quarters could affect the banking sector. Its governor, Pablo Hernández de Cos, was responsible for requesting at a sectoral forum organized by El Economista that the entities should prepare new regulations to absorb the possible losses that could be caused by the difficulties caused by the houses. and businesses.
“We are facing a very difficult macro-financial situation, characterized by high inflation, tight financing conditions and increased uncertainty, which has already led to a slowdown in economic activity in the third quarter and a downward revision of growth prospects for subsequent quarters.” Hernandez de Kos assured. The governor of the Bank of Spain noted that it is difficult to predict the evolution of the banking sector in this context, since, on the one hand, it will see an improvement in profitability with the increase in interest rates, but risks arise because of this. The evolution of the economy.
“In this context, although the initial situation of the banking sector is positive, it is necessary to exercise special caution and closely monitor the risks that may undergo a rapid adverse evolution and force the proposal of new stress scenarios,” he noted. Hernández de Cos is willing to look at the long horizon for the next two years, when “this is when most of the negative impact on the ability of households and companies to meet their financial obligations will be manifested.”
Therefore, the head of banking supervision believes that entities will have to “increase reserves to be able to cover potential losses”.
On the positive side for banks, the Bank of Spain believes that the rise in interest rates means that new operations will “yield higher returns”, as is already the case with existing loans issued at variable rates. “Although in the current situation it is likely that the volume of credit will decrease, the total income is expected to increase, especially in the short term,” he assured.
On the negative side, the Bank of Spain also calls for “special attention” to the evolution of real estate credit. “We appreciated some strength in its dynamics in recent quarters,” assured Hernandez de Cos. In the first half of the year, according to the supervisor, “the rate of change in housing prices accelerated to 8%, which confirms a certain revaluation of prices, which we estimated in previous quarters.” “However, the latest data may indicate a change in the trend in this market as a result of the described macro-financial context,” he emphasized.
In any case, the Bank of Spain believes that the banking sector is achieving this by improving solvency and profitability. “This improvement in profitability is explained by a more favorable evolution of recurring banking business, with net interest margin and fees increasing by more than 10%,” he noted. This is due to the fact that interest rates begin to rise on new operations. However, this is being done “more slowly than in the past”.
At the same time, banks will have to face the consequences of reduced consumption, which can already be seen in the different evolution of real estate credit, which continues to grow, and consumer loans, which decline.
Source: El Diario
