The performance of listed banks may be the best reflection of economic conditions. In a rising market, banking stocks increase more than the rest of the economy’s sectors. However, the relationship between financial institutions and the economy is reciprocal: the economic recovery benefits banks, whose activity is essential for growth and for achieving greater prosperity.
The risk of a short-term uptick in banks’ non-performing loans, as a result of their firm commitment to protect businesses and households since the start of the health crisis, is tempered by the economic recovery we are already seeing. More sustained economic growth, supported by reforms that increase potential growth and an effective allocation of European funds, will enable businesses and households to continue paying their debts as they have done so far. This will also give banks more room to continue providing financing, so that the recovery rests on increasingly solid foundations.
Businesses want to grow. This is the main conclusion of a recent survey conducted by the European Central Bank. And financing, they say, is not a problem. The monetary authority has warned about risks to growth such as high public debt, low bank profitability, and potential excesses in financial markets. Economic authorities can do a great deal to reduce these risks.
Financial markets are considered leading indicators of the economy. They are driven by the expectations of economic agents, although it is true that, in many cases, investment decisions may respond to impulses and emotions. For this reason, it is important to have the best possible financial education and, where possible, professional advice to ensure that we make the best reasoned decisions in line with our investor profile.
José Luis Martínez Campuzano, Spokesperson for the Spanish Banking Association
