Navigating the Wave of Inflation
The new improvements in financial regulation, banking supervision and corporate governance, together with consolidation of the sector and faster, more effective international coordination, have made financial institutions more resilient to two successive crises: those caused by the Covid-19 pandemic and Russia’s invasion of Ukraine.
The aforementioned invasion has led to unprecedented levels of inflation that have triggered a change in the European Central Bank’s monetary policy. In July 2022, a series of interest rate hikes began that, together with inflation, have tightened business margins but have not yet caused a significant increase in non-performing loans. Meanwhile, this rise in interest rates has led to the normalization of interest rates, which has resulted in improvements to banks’ income statements; the profits could help strengthen the social commitment of the banking sector, which is key to addressing the uncertain future facing society.
Banking is a non-speculative creditor of the real economy (households and companies). The banking sector constitutes a key building block in the economy of any country and governments have relied on the sector to achieve ambitious social objectives (green transition, financing of digitalization, prevention of money laundering, freezing of assets, etc.).
Currently, the banking sector has supported the government’s initiative to alleviate the increased burden on families’ mortgages resulting from the rise in interest rates, thereby creating greater stability in the share of household spending. Banks will also play a crucial role in the preventive restructuring measures set out in the new Insolvency Law, whose goal is to ensure the continuity of businesses that are viable but experiencing financial difficulties. They can play an active role that will enhance their creditor position, but they will have to maintain their capital levels and take care of provisions, a balance that could improve the selection of viable projects. Banks will be key to ensuring the continuity of viable businesses.
All of the above, plus other topical issues, will be discussed at the meeting, which will be attended by CEOs from Spanish banks and leading representatives from national and international financial institutions, academics and industry experts.
