Bank of Spain Governor warns against complacency over business debt

IN a speech given on April 29, Pablo Hernández de Cos Governor of the Bank of Spain warned that many businesses were still financially vulnerable having seen incomes decline during the pandemic.

He admitted that the outlook has improved but warned that despite the fact that the Spanish Government had helped considerably with loans and financial support such as ERTE, the economy was still heavily indebted and the solvency of many companies both large and small was under scrutiny.

Effectively many owe more money and have less income to service their pandemic debts which increases the possibility of defaults and bankruptcy.

This in turn could rebound upon the banks who could face some losses if companies do go under, even though part of the loans given during the crises may be underwritten by the Government.

The Bank of Spain believes that not only must the Government look at those who need continued financial assistance but lenders also have to consider the reform of debt structure to try to ensure that the minimum number of businesses face closure.

Banks also need to consider their bad debt provisions.