Inflation is surging and interest rates have risen, influencing how banks report earnings. The sector has pledged not to push seniors and rural residents toward financial exclusion at the government’s request. Yet the Bank of Spain reiterated this Thursday that financial institutions should press on with cost reduction strategies while maintaining access. Since 2008, the sector has achieved unprecedented efficiency gains through branch closures and streamlined templates, all while aiming to protect the most vulnerable groups from any negative impact.
Officials insist they cannot abandon those in need. They emphasize that banks should not shutter offices or reduce staff to the point of harming financial access. The message is clear: banks must avoid sacrificing the broader banking system for short-term savings. During the presentation of the 2021 Audit Report, resources from the public institution supported digital processes and structural adjustments in the physical network with concrete measures designed to prevent exclusion.
The supervisory body, led by Pablo Hernández de Cos, noted that higher interest rates can boost bank income but may trigger higher default losses if customers struggle with repayments. He warned that the impact on public debt portfolios and the broader Ukrainian conflict adds uncertainty to the economy. While the situation is challenging, it remains, in principle, manageable.
Beyond temporary uncertainties, the Bank of Spain underscored the need for banks to keep reducing their physical networks as digitization accelerates, driven by customer demand for faster, more convenient services. Banks should compete with technology firms and invest in digital capabilities that, though beneficial for efficiency, can create imbalances if not managed carefully, potentially risking inclusion for some customers. The pandemic demonstrated the speed of digitization, but it also highlighted risks that must be avoided to prevent new forms of exclusion.
The supervisory board assessed that institutions showed strong resilience during the pandemic, yet ongoing uncertainty persists due to the war and the expiration of grace periods as the ICO-backed loans for companies come due. This reality cautions banks not to ease into a blanket hands-off approach but to follow prudent guidance when assessing risk.
In line with this stance, the agency urged banks to maintain sufficient buffers to absorb pandemic-related losses while balancing fair remuneration to shareholders. It did indicate that broad restrictions would not be imposed on the sector as in the first year of the pandemic, opting instead for case-by-case considerations. There remains potential for further consolidation among smaller entities, though the trend toward mergers among the largest banks is more limited.
The Bank of Spain also stressed the importance of preserving customer trust and ensuring that banking services are clearly priced and reflect actual services rendered. It reiterated that commissions should be transparent and justified by real value delivered to clients, moving away from any perception of hidden or imaginary charges.
Additionally, concerns were raised about how sanctions related to Russia are interpreted and implemented, given overlapping, sometimes ambiguous guidelines from the United States and the European Union. The bank advised institutions to strengthen their legal departments, regulatory compliance, risk management, and governance so managers can effectively monitor adherence and respond to evolving regulatory expectations.