The Bank of Spain has warned that the coronavirus pandemic will have a negative impact on the quality of the bank’s credit portfolios.
In an article published on the bank’s website, the Governor of the Bank of Spain, Pablo Hernández de Cos, said that the magnitude of the negative impact will be dependent on the duration and severity of the pandemic.
He admitted that after an unprecedented recession for the country, Spain now faces a gradual recovery and he called for an “urgent” approach to a reform programme set to address structural challenges.
Banks across Spain are already preparing for the impact that an increase in non-performing loans is likely to have and de Cos reiterated the fact that the uncertainty around the pandemic is continuing to impact consumption and investment figures throughout the country.
In his article de Cos went on to explain that whilst it may be necessary to accept the necessary fiscal expansion policies in the short term due to current circumstances, in the medium term in order to clean up state coffers an account reorganisation plan is essential.
He also advocates for periodically extending and recalibrating some of the measures that have already been applied which would currently focus on the groups and companies most affected financially by the pandemic. In his article de Cos also suggests that prioritising the relocation of workers and reviewing restructuring processes would allow those companies who are struggling financially thanks to the pandemic to continue their activities once viable to do so.
de Cos also claimed that many of the challenges facing the economy currently were already existent across Spain before the pandemic. Things such as low productivity growth, high rates of temporary and structural unemployment highlighted a need to address challenges in inequality if the country is to ever move towards a more sustainable economy.
