The economic context has also led to a “deterioration of the environment for financial stability,” and there have also been “signs of deteriorating asset quality” for banks. That’s how strong Pablo Hernandez de Cos, governor is Bank of Spainin his speech at the Enrique Fuentes Quintana Conference Session, organized by the Royal Academy of Moral and Political Sciences.
The head of the Central Bank added that “the high inflation rates and the expected decrease in economic growth, in addition to the increase in interest rates, negatively affect the ability of households and companies to pay.” In this sense, he highlighted that vulnerable businesses and households are most threatened by this inflationary and energy crisis, which, although it appears to be declining in general, the cost of living does not stop increasing with the already core CPI. by 7%.
He stressed that “despite the increase in the profitability of the banking sector last year, there are signs of a deterioration in the quality of assets, the size of which will depend on the embodiment of risks to economic growth.” cos. This is why the governor calls on the financial sector to use “the increase in interest that occurs in the short term to increase its flexibility.”
This includes the in-house shielding you require maintaining prudence in provisions and also with capital planning. Similarly, De Cos calls on banks to pay close attention to economic developments to try to anticipate potential problems that may occur in the coming quarters. However, he realizes that the scenario is now much clearer than it was a few months ago, when a possible threat of recession was projected in Spain.
Moreover, the ruler asserts that this context is also subject to “On the levelhigh degree of uncertaintywhich arose above all in the development of the war in Ukraine and its economic repercussions, which are difficult to predict ».
In such a situation, De Cos took the opportunity to repeat what already sounds like a mantra: general measures should not be approved for the whole population, but focus on some groups. “The measures must now be very selective and focus on low-income households – who suffer the most from the increase in inflation – and companies most vulnerable to the high cost of raw materials. This would avoid a Extensive paymentThis will create additional pressure on inflation.”
Among other things, careful control of inflation, as far as possible, is the work of the European Central Bank. De Cos indicated that they have the task of stabilizing prices, which is set at the consumer price index of 2%, a level that is not expected to recover in the eurozone, not even in 2025. For this reason, the banking supervisor is increasing interest rates refer to the rate interest and will continue to do so in the future, until inflation is tamed: “We have indicated to the ECB Governing Council that it will be necessary to continue to increase interest rates significantly in the next meetings, at a constant rate, until levels that make it possible to guarantee a return Inflation to target.
