Spanish banks want to extend provisions amid financial slowdown, De Cos says By Reuters

By Jesús Aguado

MADRID (Reuters) -Spanish banks must intently monitor dangers and improve provisions to cowl potential losses as an financial slowdown and power worth hikes are already hurting households and firms, Financial institution of Spain Governor Pablo Hernandez de Cos mentioned on Tuesday.

De Cos mentioned {that a} very advanced macro-financial scenario, marked by excessive inflation, tighter financing circumstances and elevated uncertainty, had already led to a slowdown within the Spanish financial exercise “within the third quarter and a basic downward revision of the expansion outlook for the next quarters.”

On Monday, the Spanish authorities lowered its financial progress outlook for 2023 to 2.1% from 2.7% beforehand.

Although greater rates of interest are anticipated to spice up banks’ monetary margins within the short-term, monetary supervisors have just lately cautioned towards the dangers to monetary stability stemming from Russia’s warfare in Ukraine.

De Cos mentioned the online impression of the brand new macroeconomic scenario for banks over a three-year horizon may very well be detrimental in sure eventualities, when considering greater power costs, higher persistence of bottlenecks in worldwide commerce, which might generate additional rises in inflation and a further tightening of financial coverage.

On this situation, he informed lenders to be “very cautious” with capital planning and their provisioning coverage and that they might finally want to extend their provisions to cowl potential losses.

A rise in insolvencies amongst shoppers might result in a rise in non-performing loans, which in July reached their lowest stage since December of 2008 at 3.85%, thanks partly to mortgage moratoria granted in the course of the COVID-19 pandemic.Unhealthy loans are additionally removed from a peak of 13.6% reached in December 2013.

The Financial institution of Spain governor mentioned that over a considerably longer horizon – from one to 2 years – most of the detrimental results on the power of households and companies to fulfill their monetary obligations of the present shock and anticipated context might materialise.