Financial institution of Spain urges lenders to protect capital as dangers mount By Reuters

By Jesús Aguado

MADRID (Reuters) -Spanish banks must protect capital and preserve a lid on mortgage mortgage prices to deal with a possible deterioration of the financial outlook, the Financial institution of Spain warned on Friday.

The central financial institution stated that dangers to monetary stability had elevated since its final report on the matter in April.

The establishment’s head of economic stability Angel Estrada additionally warned that mortgage aid measures being readied by the federal government and banks needs to be momentary and focused solely at susceptible households.

“The measures should determine the goal group and the help should not improve the price of future (mortgage) purchasers,” Estrada advised a information briefing.

Although larger rates of interest are additionally anticipated to spice up banks’ monetary margins within the quick time period, monetary supervisors have just lately cautioned towards dangers stemming from the warfare in Ukraine at a time when recession looms in Europe.

“All this recommends a prudent provisioning and capital planning coverage, permitting a short-term improve in earnings for use to extend the resilience of the sector,” it stated in its semiannual monetary stability report.

The central financial institution anticipated excessive inflation in Spain to additional stress the financial outlook in coming quarters after it just lately reduce its progress forecast for 2023 to 1.4% from a beforehand anticipated price of two.8%.

Although Spanish banks, together with Santander (BME:) and BBVA (BME:), posted better-than-expected third-quarter earnings however they had been overshadowed by larger loan-loss provisions.

The European Central Financial institution has additionally really helpful prudence and its high supervisor Andrea Enria appeared to name time on a season of enormous share buybacks by banks because the financial system weakens.

Spanish lenders have been growing their shareholder remuneration by means of larger pay-outs averaging 40%-60%, share buy-backs or a mix of each.

“Pay-out ratios of Spanish establishments usually are not extreme and across the common or beneath that of the worldwide banking techniques, however the advice to be prudent continues to be on the desk,” Estrada stated.

Echoing the ECB’s non-binding opinion on Spain’s banking tax proposal, the Financial institution of Spain stated the levy would damage banks’ profitability and capital technology in 2023-24.