The Bank of Spain analyzes these days the reasons and consequences of the recent financial turbulence on Spanish entities. The agency remains vigilant about the liquidity situation of banks in the country, but rules out that recent tensions in the market translate into a restriction of credit to families and companies; These will come, however, due to the impact of the rise in rates and inflation.

"I do not think there are credit restrictions due to liquidity tensions," said Mercedes Olano, Director General of Supervision of the Bank of Spain, during the presentation on Tuesday of the Supervisory Report corresponding to the year 2022. "The tightening is determined by the rise in interest rates, since there are fewer customers able to face them," and by the impact of inflation on household and corporate incomes. It will be a contraction of credit through demand, as Olano explained: those who already have credits, will have higher fees and those who do not, will face more difficulties to get them. "It is an uncertainty that is on the table," he added.

These days, the Bank of Spain monitors the rest of the uncertainties linked to the recent banking panic in the markets. According to Olano, Spanish banks have "solid fundamentals" of solvency and liquidity and develop a business model very different from that of the ill-fated Silicon Valley Bank (SVB). "It is a commercial banking model very focused on retail customers and with enormous diversification," said Olano, also listing that Spanish entities have "a lot of liquidity" to withstand such attacks and that liabilities are covered at 66% by the Deposit Guarantee Fund. "It is almost impossible to repeat the SVB in Spain," he stressed.

Olano has also ruled out the risk of contagion by Credit Suisse, where Spanish banks have a "very marginal" direct exposure, between 300 and 400 million in all types of products.

In this scenario, the Bank of Spain does not consider "today" increasing liquidity requirements for national entities, although they maintain a vigilance on the evolution of the recent crisis. These days they have held talks with the treasurers of the entities to supervise precisely the state of that liquidity and "there are issues that are on the table", on which they are carrying out a "serious follow-up but not as incisive as in the pandemic".

No outflows from deposits

Unlike what happened after the outbreak of the coronavirus, the Bank of Spain has not detected these weeks an "extraordinary" withdrawal of deposits nor does it plan to activate some of the extreme measures that the ECB used due to the impact of Covid-19.

Nor does it now contemplate requiring an increase in provisions to entities to protect themselves against possible vulnerabilities, although the body chaired by Pablo Hernández de Cos considers that this should be a movement that emerged from the sector itself. "We tell banks to take advantage of profits to increase their capital ratios and increase provisions," Olano said. "It is foreseeable that NPA ratios will increase and when that happens, entities will have buffers to cover them and will make the system more stable," he added.

This is also reflected in the Supervisory Report itself, which points out that European supervisors "have established as a supervisory priority for the period 2023-2025 that credit institutions strengthen their resilience to immediate macrofinancial and geopolitical shocks, fearing that the increase in financing costs and the reduction in the disposable income of companies and households could generate a deterioration in the quality of credit assets".

More provisions and fewer dividends. After the restrictions during the pandemic and the reduction in profits in recent years, Mercedes Olano considers that there has been a "rebound effect" in shareholder remuneration. "It's the typical tension between supervision and banks. We must achieve a certain balance between the remuneration to capital being adequate but not excessive, "he said in this regard.

According to The Trust Project criteria

Learn more