Spain | Financial stability — put to the test

A few days ago, Bank of Spain published its latest financial stability report. In these half-yearly reports, the supervisor assesses the main risks and vulnerabilities to the stability of the Spanish financial system.

Key points

• Key points:
• The first weakness it highlights is the financial position of certain segments of firms and households, that could involve latent losses for banks.
• The second relates to the increase in government debt — which makes the Spanish economy vulnerable to a possible worsening of financing conditions.
• The third weakness is the low profitability of the banking sector. Bank of Spain recognizes that the Spanish banking system returned to pre-pandemic levels of profitability in the first half of 2021, largely due to the recovery in activity and lower provisions.
• Turning to risks, the supervisor first pointed to the likelihood of a deterioration in financing conditions and a correction in financial asset prices.
• Secondly, the Bank of Spain highlighted the potential downside risk to economic growth — though it recognizes that the baseline scenario is more favorable than in previous quarters.

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