Pablo Hernández de Cos, Governor of the Bank of Spain, does not leave a single occasion to remind the Government of the risks that our country faces. You repeat certain messages in multiple speeches until your words sink in, gradually hardening your message. Alerts on European funds and public finances have been his two objectives for a long time,
since recovery has started to appear on the horizon.
The institution updated upwards a few weeks ago its macroeconomic projections for Spain and placed the recovery of the levels of Pre-Covid GDP at the end of 2022, already with a bit more certainty as the crisis progresses. In fact, he stressed that strong growth will be seen in the coming quarters, although he recently warned that
we must not be “impressed” by these figures since structural reforms are still pending.
In this scenario, De Cos pointed out today at the 16th Banking Sector Meeting, organized by IESE, that there are still uncertainties and risks to face. “They are more balanced but they exist,” he said. These are, for example, what will happen with the new variants, how effective the vaccines will be against these new variants, what will happen with private consumption and with excess savings of families … However, one of its biggest warnings It has come at the cost of the money that will arrive from Brussels, and with the Spanish recovery plan already approved by the Commission: “We have many doubts about the impact of European funds”.
Their contribution to GDP is quantified by their organization at more than 1.5 points per year, but there are also doubts about their temporary execution, the fiscal multiplier they will have, etc. In short, doubts about the execution of the 140,000 million that they correspond to Spain. Likewise, the governor has demanded that the EU funds be used for “projects that increase the potential growth of the economy”, while recalling that this item can also be used to finance structural reforms. Reforms that are often left in limbo due to lack of funds.
As usual, De Cos has asked the Executive to design from now on a fiscal consolidation plan, which would result in “very important credibility gains” for the Spanish economy, which would allow its implementation to be more gradual in the future thanks to that credibility. “The answer now has to shift to putting the full weight of economic policy towards the medium-long term,” he commented.
Regarding the banking sector, the governor has pointed to the union as “part of the solution” to this crisis, compared to the previous one, which was of a financial nature. The strength of financial institutions has improved and they have responded to the economic needs derived from Covid, but they also feel (and will feel) the effect of the situation.
De Cos has spoken that there is “positive news” in terms of delinquency. The NPL ratio is still contained, according to the latest definitive data from the Bank of Spain, of March, at 4.4%, “four tenths lower than a year ago”, although it has also recognized a certain worsening since the stock of doubtful assets has fallen by 19-20% in the pre-Covid stage now only 4%.
“There are risks of deterioration in credit quality,” the governor has warned, showing caution for the sector. “Loans under special surveillance increased by almost 25% in 2020, and until March it has accelerated further to 37%,” he added, to also focus on refinancing. And, finally, he commented on his concern about the doubtful consumer credit, of which he explained that it is the one that deteriorates the fastest and that it is already in deterioration of 23%.