Publications

Banking activity, understood as the channeling of savings into investment, is not restricted only to the local market with its domestic sectors, but also a relevant part is carried out by banks in their international activity.

Scarcity raises the price of a good. This economic law has been drummed into us as a result of the numerous booms and slumps that have molded our societies over the centuries.

Despite limited exposures, we are likely to see impairments in banks' loan portfolios, an increase in the operational risk resulting from sanctions and a fall in profitability of the most-exposed banks which, in some cases, could erode part of their capital.

Although the NPL ratio in the banking system declined as banks sped up the disposal of bad loans, asset risk remained high amid the repeated pandemic threats and the slow recovery. The risks associated with Evergrande’s fallout are manageable although it will take a longer time for the banking sector to absorb the shock.

Over the summer, the optimism in the financial markets held firm. This was despite the confirmation of the unprecedented collapse of economic activity in the second quarter of 2020 — the result of the drastic measures taken on a global scale to contain the spread of COVID-19.

It is still too early to take stock of the year but, with a little more than a month to go until it ends, everything indicates that 2018 will have been the year in which the financial markets ran head on into reality. In 2017 a very positive tone dominated the markets, due to a combination of factors that shaped a very favourable global environment.

Last week the European Commission presented a proposal for developing a new class of low-risk assets denominated in euros. SBBS, or sovereign bond-backed securities, are securitisations backed by a set of sovereign bonds of euro zone countries. Each SBBS would thus incorporate an exposure to a small part of sovereign bonds of each euro zone Member State.

The European Commission recently issued a guide for countries wishing to be able to create bad banks for the purpose of managing their banks’ impaired assets, whether loans or repossessed assets. A bad bank is a public or private sector entity that acquires these assets and has an extended period in which to liquidate them by means of recoveries or sales.