The Bank of Spain has calculated the exposure of the entire Spanish financial sector to the areas affected by DANA. That is, how many loans, credits and mortgages they have in the affected territories. A figure that reaches 20,000 million euros.
That is the maximum exposure figure of the entities, but it does not mean that they have all that volume of funds at risk, because the impact will depend on the measures that are being implemented by public administrations. Of those 20 billion, more than half, 13 billion, correspond to households of the affected populations. And another 7.2 billion, to companies. Specifically, it estimates that there are 23,000 businesses in the affected areas with active loans. Meanwhile, in homes, it is more difficult to make an estimate, supervisor sources justify. What the Bank of Spain calculates is that there are 472,000 mortgage holders in these towns, although they may have several holders at the same time.
“When we have an idea of the aid, we can have an estimate of the economic impact,” sources from the supervisor acknowledge. What they see clearly is that “for a financial system like the Spanish one, it is something that can be absorbed”, despite the fact that these are high figures. At the moment, the Bank of Spain does not have specific data by entity and the impact, it emphasizes, will depend greatly on the measures that are implemented.
“The normal thing,” the aforementioned sources point out, “is that the sequence for absorbing losses is first the Insurance Compensation Consortium,” although there will be people and companies that are 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 scope of the aid, it is difficult to know the total impact,” they reiterate.
One of those measures, by the financial sector, are moratoriums. The President of the Government, Pedro Sánchez, already announced this Tuesday an agreement with financial entities, so that families and companies can postpone the payment of loans and mortgages in full for three months and pay only interest for nine more months. As an example, you have indicated a mortgage of 115,000 euros, with a monthly payment of 600 euros. “During the first three months they will not pay a euro” and in the following nine months they will pay 300 euros. This measure will affect, he said, 30,000 companies and thousands of homes.
The Bank of Spain considers that moratoriums can be an “effective measure”, but clarifies that from a regulatory point of view it must have legal support, so that it is not a concession process only by the entities and its duration has It will depend on the impact that the moratoriums are having.
Regarding banking procedures to mitigate this type of crisis and damage, the Bank of Spain assumes that banks have to take measures, which have a cost, but that prevents physical risks from materializing and also reporting those that occur. they assume.
For example, entities have to calculate the risk they assume in granting loans and mortgages, which have to have an appraisal and have to 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 homes that are comparable. Although there is no data in Spain, the aforementioned sources assume that, in the United States, housing prices in flood-prone areas are lower.
Reduced impact of lower rates
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 bank profitability would be limited and gradual, as the potential negative effects on unit margins would be offset, at least in part, by a more favorable evolution of the volume of activity and provisions for impairments and have entities with different interest risk management instruments,” he breaks down. “The results of the Bank of Spain’s stress tests show, in fact, that the Spanish banking sector would retain the capacity for organic capital generation under this type of scenarios.”
The banks’ results continue at record figures. In the first nine months of the year, the five large entities, Santander, BBVA, Sabadell, Bankinter and Caixabank have 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 points out that “the process of increasing monetary policy rates has led to a general increase in the profitability of European banks, in the “that Spanish entities have remained significantly above average” with respect 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 the CET1 solvency ratio,” warns the supervisor. “Favorable profitability forecasts would facilitate the potential reinforcement of bank solvency and compliance with additional capital requirements, such as the activation of the countercyclical capital buffer.”
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