Prudence. The recent bank lending survey prepared by the European Central Bank (ECB) reflects the predominance of this attitude among European banks, businesses, and households in the fourth quarter of 2020. Prudence on the part of European banks in the face of greater uncertainty about the evolution of the pandemic and its economic impact. And prudence on the part of families and businesses that view the future with concern and therefore reduce their demand for new financing. Vaccines increase hope for a victory over the virus, but together we must make it possible for the subsequent economic recovery to be strong and solid. Financial institutions will do so by ensuring responsible financing under the best possible conditions. And businesses and authorities must lay the foundations for a sustainable economic recovery by carrying out adjustments and reforms that increase potential growth. <\/p>\n
The deterioration in the outlook reflected in the survey\u2014for the economy, borrower solvency, and the value of collateral\u2014increases the perceived risk under which financial institutions operate. Prudence and responsibility under objective criteria guide the actions of banks, whose main priorities are to protect the customer and preserve financial stability. The opposite would lead to generating new excesses and financial risks that are currently nonexistent. All of this explains the changes made by institutions during the period analyzed in lending criteria and in the conditions applied to new loans. <\/p>\n
Proper risk management and the policy of early recognition of non-performing loans are key to enabling banks to continue fulfilling their function of providing financing to the economy. Spanish banks increased their provisions by 75% through the third quarter of last year. This strong effort in provisions and write-offs far exceeds that undertaken by their European peers (up to double the average effort made by banks under ECB supervision) and explains their quarterly results. Spanish banks are attempting to anticipate the future evolution of non-performing loans in an environment of high economic uncertainty arising from the health crisis. At the same time, they maintain a strategy of continuous strengthening and efficiency improvement. Their high level of efficiency, at the top of the European ranking, and their commitment to continue improving it ensure their readiness to remain part of the solution to the economic crisis arising from the pandemic. <\/p>\n
The survey also reflects that between October and December, demand for funds from businesses and families decreased for the second consecutive quarter. According to the responses collected by the monetary authority, the decline in applications from businesses would have been a consequence of lower investments and their reduced need for liquidity. Many businesses would have anticipated and covered their future liquidity needs through bank financing received in the first months of the pandemic. In the case of families, demand for funds for home purchases would have decreased slightly, mainly due to declining confidence and, to a lesser extent, deteriorating market prospects. And this despite the favorable impact associated with the low level of interest rates and the facilities provided by institutions for loan repayment. <\/p>\n
The debt of businesses and households in Spain reached 143.2% of GDP in the third quarter of 2020, ten percentage points higher than in the same period of the previous year, according to data from the Bank of Spain. This growth is explained exclusively by the increase in corporate debt, more than half of the total. In the current difficult context, it is crucial that authorities consider other types of solutions for those businesses that cannot access bank financing and that complement it with the ultimate goal of continuing to protect the productive fabric. <\/p>\n
Banks are fundamental to driving economic and social growth and prosperity. In our country, the solid starting position they were in when COVID-19 broke out allowed them to react quickly and decisively to mitigate the economic effects of the health crisis on Spanish society. After nine months of the pandemic, their willingness and capacity to continue doing so is evident. So is their commitment\u2014that of all their financial and human resources\u2014dedicated to the challenge of driving the economic recovery and reconstruction that we all need. <\/p>\n