Spanish banks: Navigating uncertainty
Fecha: septiembre 2024
SEFO, Spanish and International Economic & Financial Outlook, V. 13 N.º 5 (September 2024)
Index
Economic and political instability, both domestically and globally, have led to increased volatility in EU sovereign risk premiums, with France particularly affected. While the EU’s flexible fiscal rules offer temporary relief, long-term fiscal reforms are necessary to address underlying imbalances and return greater stability to EU sovereign debt markets.
Interestingly, the banks’ excellent earnings performance over the past two years, in both Spain and Europe, driven mainly by growth in net interest income on the back of high benchmark rates, has not had an adverse impact on asset quality. Within this context, it is worth singling out the prudent provisioning effort being made by the Spanish banks, and the European banks in general, so far this year, recognising considerably more provisions (overlays) than required under applicable accounting standards and banking regulations.
Spain’s banks are becoming increasingly more international, as shown by the share of total assets commanded by their international business. This strategy of international expansion and geographical diversification has paid off, yielding the benefits associated with both processes for the consolidated groups relative to the domestic banking business.
On 13 March 2024, the ECB announced a new operational framework to manage its shrinking balance sheet, fundamentally altering its relationship with the banking system and financial markets. The major impact will be felt by 2026-2027 as the Eurosystem’s balance sheet decreases, requiring the ECB to adapt its monetary policy while preserving financial stability.
The European automotive sector is facing a significant decline, with production contracting sharply between 2019 and 2023, placing it behind American and Chinese counterparts. While Spain has managed to mitigate some of these challenges given its relatively stronger position in the European market, the broader industry faces an uncertain future without strategic investment incentives to address a range of structural weaknesses.
Labour shortages have become an increasingly pressing issue across various sectors and occupations since the COVID-19 pandemic, with significant economic implications. While Spain’s regional public employment services are implementing various initiatives, a more coordinated and sector-specific approach is needed to effectively tackle labour shortages and enhance labour market efficiency.
The probability of a second consecutive budget carryover in 2025 is high, with the main obstacle to approval constituted by the new financing framework under negotiation for the Catalan region. As a result of the tense climate created by these negotiations, the government is having a hard time getting approval for the ceiling on non-financial spending, the first prerequisite for passing a budget for 2025.
Financial education is evolving rapidly in the context of digitalization and economic transformation, yet Spain still faces inequalities in the implementation and quality of financial education programs. A thorough assessment, including the use of long-term studies and monitoring systems, is essential to ensure initiatives to improve financial education achieve their objectives and reduce social and economic inequalities.