Tuesday, November 29

The Bank of Spain estimates that the new banking tax will subtract only 5% from its benefit

The Bank of Spain has adhered this Friday to the criticisms made last week by the European Central Bank against the banking tax that is being processed in Congress. However, he considers that this is a small impact on the sector’s profits. The general director of financial stability, Ángel Estrada, has defended that it will suppose “between 5% and 6%” of the profits of the sector. Estrada has been in charge of presenting the Financial Stability Report that the body presents twice a year and that estimates the impact of the new tax on the Spanish profits of the affected entities at 12%.

The document presented this Friday by the supervisory body presents a positive scenario for the banking sector, although with caution. “Profitability has been around 10%, higher than what we had before the pandemic,” Estrada assured, adding that “the profitability of Spanish banks is above other European systems.” That is to say, Spanish banking manages to stand out for its profitability, together with the Italian, when in the past it was at the bottom of the continent. This improvement allows the bank to have an added cushion to be able to face “unexpected losses”, as the person in charge of financial stability of the organism has assured.

There are different data that show that the sector faces the uncertainty of the coming quarters due to inflation and the rise in interest. One of them, which stands out in the report, is that delinquency has reached its lowest level this year since 2008, when the great financial crisis broke out. Banks are counting on “an increase in the quality of the balance sheet”. In addition, loans that were in “spatial surveillance”, a step prior to default, have been reduced in recent months after the increases that occurred during the pandemic.

The Bank of Spain report includes a small stress test for the Spanish banking sector. This test involves assessing the resistance of the sector to two scenarios. A base that supposes complying with the forecasts of macroeconomic evolution drawn up by the supervisor. The second, severe, supposes a rise in energy or food prices and a slowdown in the economy. In both cases, the Bank of Spain indicates that the Spanish banking system could withstand the shocks to the economy. Although, he warns that banks may find themselves with the need to use more capital than initially planned to cushion possible losses.

That is why Estrada asks the banks for “prudence.” “It is essential to maintain a high degree of prudence in its provisioning and capital planning policies,” the report points out. In other words, he asks the banks to study well the different macroeconomic scenarios and based on them, make new decisions on provisions. Some entities have raised them in recent months in the face of uncertainty due to the risks arising from price increases. However, the Bank of Spain avoids giving a general instruction to entities on their distribution of dividends, a policy that some have recently extended. “The recommendation to be prudent is still on the table”, Estrada has limited himself to pointing out.

One of the sensitive issues in the coming months is the impact that price and interest rate increases will have on the ability of lower-income households to be able to meet this increase in spending. Thus, the Bank of Spain estimates that for households that are among the 40% with the least income, a sharp rise in rates could account for between 11% and 16% of their income. In addition, 13.8% of households are already in a situation of financial vulnerability, due to the high burdens they have to face due to their debts compared to their income.

The Bank of Spain has also focused on the real estate market. In recent months there has been an acceleration in the granting of mortgages and in the records of purchases and sales of real estate. “Housing sales have continued to show notable strength, although in the most recent period some signs of slowdown have been observed,” says the Bank of Spain report. That is to say, data are seen, such as those received in the summer, that would indicate a slowdown in growth, although it would still have to be confirmed in the coming months. In any case, Estrada has pointed out that there is no problem of overvaluation of real estate assets in Spain, which could result in an imbalance. “It is very moderate,” he assured.

The supervisor has also analyzed the evolution of non-performing loans that were granted to companies during the pandemic guaranteed by the ICO. Most of the grace periods have expired and the Bank of Spain considers that the delinquency levels of these loans are not higher than that of other types of financing.


Leave a Reply

Your email address will not be published. Required fields are marked *