Warning to financial institutions from the Bank of Spain. The supervisory body has been warning banks for months strengthen confront the predictable increase in guilt and the loss of asset value this will cause economic slowdown caused by a sudden event raise rate. But lieutenant governor, Margarita Delgado turned the tone up a notch this Wednesday. “Given the prevailing uncertainty, this is to be expected.” corruption Therefore, supervisory authorities recommend that banks strengthen their creditworthiness policies. capital and provisions“, he insisted before warning “No expectations” by beings.
At a conference organized by the banking union AEB, the Bank of Spain’s number two based his criticism of the lack of preparation of European and Spanish banks on two pieces of information. On the one hand, he emphasized that: loans under special supervision Due to the high risk of non-payment (9.29% of the total), decrease In the euro area from the peak of the third quarter of 2022. “This puts us in the position of organizations catch it properly Thanks to early warning systems deterioration of economic and financial conditions. Under current conditions economic slowdownequal recession “With the use of this technique in some European countries, it can be expected that this debtor segment will become larger or at least its weight in the total will increase,” he warned.
As a second argument he emphasized: credit refinanced There is a significant decline in the Eurozone (17.8% by June), mainly due to the reclassification of many into the regular loans category. “This should make us think about whether these are the result of the strength of employment and business activity and therefore still projection with all its greatness Effects of interest rate increase interest. This fact is very important in terms of: Closing of 2023 results Banks need to pay close attention to the development of credit quality. Weak growth, high inflation and rising geopolitical tensions“, warned.
Profit threatened
In this sense, Delgado underlined that the interest rate increases made by the European Central Bank (ECB) to combat high inflation “generally had a positive effect.” positive and significant impact on profit of European banking. Thus, he noted, the increase in the cost of money was reflected “much faster” in loans than in deposits, but was not “yet” reflected in the increase in defaults and provisions. In fact, the cost of risk (the weight of provisions on the loan balance) dropped from 0.52% to 0.45% in one year. All this led to: cost effectiveness capital rose 5-6% from before the pandemic to today at 10%. In Spain, the increase in basic income was much “larger” than average; Therefore, profitability is also higher at 12%, although this is partially offset by higher provisions than in the euro area (1.09%).
However, the days when the results will improve are numbered: “In the short term, the tightening of monetary policy has not yet been fully transferred and therefore, margin increases seen recently not sustainable Thus, Spanish banks transferred 50 percent of the increase in interest rates to loans, only 29 percent to households’ term deposits, and 45 percent to companies’ term deposits, which remained a minority compared to the funds held in outstanding checking accounts. ” However, this may change in the future as liquidity go in system decrease“, warned.
Added to this are the predictable ones. asset quality deteriorationThis is something that will be “highly conditioned by the evolution of the economy in general and the labor market in particular.” And so Delgado insisted on “credit risk management systems, especially credit risk management systems.” early warnings, take a special role in these moments of uncertainty. “This will allow organizations to anticipate potential increases in defaults and adapt portfolio management more efficiently.”