Pablo Hernández de Cos, head of the Bank of Spain, warned this Monday: The profitability and solvency of the banking sector may be adversely affected by the current macro-financial environment and new sector tax therefore, it asks for common sense once again.
this interest rate hike It will increase the revenues of the banksBut the governor also announced It will increase the financing costs of households and companiesThis will reduce their solvency, which will force banks to increase their loan impairment provisions.
In his speech at the XIII Financial Meeting organized by KPMG and Expansión, Hernández de Cos reminded that in a baseline scenario, Spanish banks could increase their solvency rates by about 60 basis points, even if there were no new taxes imposed on the emerging sector. Reduced to 50 basis points.
The effect of the economic situation and the tax
But the economic reality has worsened.Taking into account the tax effect, this growth expectation in the solvency ratio of the banking sector, which will decrease to 20 basis points, is around 30 basis points.
At the end of June 2022, CET1 capital ratio was 12.9% and although it had improved from pre-pandemic levels, it was still one of the lowest levels of banking union.
And the forecast is that banks will have to raise their provision “very significantly”, causing the CET1 maximum quality solvency ratio to drop by 2.4 percentage points (pp) – in a “but reasonable” adverse scenario it would be even worse. up to 2.6 pp if extraordinary tax is added.
Considering the data in the middle of this year, This deterioration will leave the sector’s solvency ratio at 10.3%.
about “significant capital consumption”, However, in the governor’s view, he pointed out that the overall solvency of the sector will remain at “adequate levels” with differences between organizations.
The main conclusion of the Bank of Spain is that in the context of the current uncertainty, the risks to financial stability and thus the probability of worst-case scenarios are increasing,Businesses use the increase in short-term benefits to increase their resilience.
In addition, Hernández de Cos insists that organizations should maintain a “prudent strategy” in their procurement and capital planning policies and closely monitor macroeconomic developments that allow them to react quickly if the risks considered eventually materialize.
family status
The governor also pointed out that the worsening of families’ finances could have an impact on their ability to repay their debts, although the available empirical evidence “shows that the mortgage is one of the last financial obligations to end.” It will satisfy Spanish families”.
The majority of defaults are concentrated in the first five years of the company’s life. when extreme conditions occur, such as mortgage loans and significant declines in income (more than 20%) or unemployment, in both cases it happens continuously for about two years.