Bank of Spain Governor encourages new bad debt provisions

Governor Pablo Hernandez de Cos

Governor Pablo Hernandez de Cos Credit: Banco de España flickr

BANK OF SPAIN Governor encourages new bad debt provisions by commercial banks in order to ensure that they are not caught out if economy falters.

Although not quite as dramatic as the apparent rift between the Bank of England and the UK Government, there appear to be signs of disagreement between Spain’s economy minister Nadia Calviño and Bank of Spain Governor Pablo Hernandez de Cos.

He delivered a long speech at the El Economista Forum on Tuesday October 4 in which he warned banks against the possibility of defaulting loans due to high energy costs and the Russian invasion of Ukraine.

On the same day Minister Calviño suggested that there were currently no signs of an economic slowdown even though on the previous day, the forecast for 2023 growth had been reduced from 2.7 per cent to 2.1 per cent.

One of the highlights of the Governor’s speech was this statement “We find ourselves in a highly complex macro-financial situation, characterized by high inflation, tightening of financial conditions, and increased uncertainty, which has already led to a slowdown of economic activity.”

He highlighted the fact that there would be a downturn in economic growth for the third quarter of 2022 and that this would continue due to the cost-of-living crisis and until the situation with Russia and Ukraine is resolved.

Although he accepted that the current debt situation in Spain is good, he anticipates the situation deteriorating should there be higher inflation as well as soaring interest rates since the majority of mortgages are at variable rates.

Some Spanish banks have strengthened through mergers but could still be vulnerable to increasing bad debts and significant increases in operating costs.

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