The Bank of Spain has calculated the exposure of the entire Spanish financial sector to areas affected by DANA. That is, how many loans, credits and mortgages they have in the affected territories. A figure which reaches 20,000 million euros.
This is the maximum exposure figure of the entities, but it does not mean that they have all this volume of funds at risk, since the impact will depend on the measures implemented by public administrations. Of these 20 billion, more than half, or 13 billion, correspond to the households of the affected populations. And an additional 7.2 billion to businesses. Specifically, it estimates that there are 23,000 businesses in affected areas with active loans. On the other hand, in homes, it is more difficult to make an estimate, supervisory sources explain. What the Bank of Spain calculates is that there are 472,000 mortgage holders in these cities, although they can have several at the same time.
“When we have an idea of the aid, we can have an estimate of the economic impact,” recognize supervisor sources. What they see clearly is that “for a financial system like Spain’s, it is something that can be absorbed”, even if it is high figures. At the moment, the Bank of Spain does not have specific data by entity and the impact, she emphasizes, will greatly depend on the measures that are implemented.
“The normal thing”, emphasize the aforementioned sources, “is that the sequence of absorption of losses is first the Insurance Compensation Consortium”, although there will be people and companies that will not be not insured. To this will be added income support measures – such as ERTE – and financial obligations, other costs such as rent and direct aid. “Until we know the scale of the aid, it is difficult to know the total impact,” they reiterate.
One of these measures, taken by the financial sector, are moratoriums. The President of the Government, Pedro Sánchez, already announced on Tuesday an agreement with financial entities, so that families and businesses can postpone the full repayment of loans and mortgages for three months and only pay the interest for another nine months. For example, you have indicated a mortgage of 115,000 euros, with a monthly payment of 600 euros. “For the first three months, they will not pay a euro” and for the following nine months, they will pay 300 euros. This measure will affect, he specified, 30,000 businesses and thousands of households.
The Bank of Spain considers that moratoriums can be an “effective measure”, but specifies that from a regulatory point of view they must have legal support, so that it is not a concession process only by entities and that their duration will depend on the impact of the moratoriums.
Regarding banking procedures to mitigate this type of crisis and damage, the Bank of Spain assumes that banks must take measures, which have a cost, but which prevent the materialization of physical risks and also report those that they assume.
For example, entities must calculate the risk they assume in granting loans and mortgages, which must be assessed and must incorporate assessments, also of possible environmental impacts. In fact, the Bank of Spain assumes that there is already evidence that energy efficiency certificates influence the price of housing, in comparable housing. Although there is no data for Spain, the aforementioned sources assume that in the United States housing prices in flood-prone areas are lower.
Reduced impact of the rate cut
The Bank of Spain, in its stability report, also focuses on the impact that the drop in interest rates will have on financial entities. At first, he sees it reduced.
“The impact of the drop in interest rates on the profitability of banks would be limited and gradual, the possible negative effects on unit margins being offset, at least in part, by a more favorable development in the volume of activity and provisions for depreciation and provisions. We have entities with different interest risk management instruments,” he collapses. “The results of the Bank of Spain stress tests in fact show that the Spanish banking sector would retain the capacity for organic capital generation in this type of scenario.”
Bank results continue to reach record figures. During the first nine months of the year, the big five entities, Santander, BBVA, Sabadell, Bankinter and Caixabank, added a profit of 23.656 million euros.
The Bank of Spain, in its analysis, focuses on the first half of the year, in which it highlights that “the process of increasing monetary policy rates has led to a general increase in the profitability of European banks, in the ” that Spain’s entities remained significantly above average” compared to their peers in other European countries.
“This positive differential in terms of profitability of Spanish banks has not translated into an improvement in their relative position in terms of CET1 solvency ratio,” warns the supervisor. “Favorable profitability forecasts would facilitate the potential strengthening of banks’ solvency and compliance with additional capital requirements, such as the activation of the countercyclical capital buffer.”
