The Bank of Spain issues a warning to the banks and the Government: it will not allow a relaxation in the conditions for granting mortgages, no matter how low the credit debt of families is and the need to improve access to housing is very high. His message coincides with a contraction in mortgage loans, new housing construction plans sponsored by the Government and the launch of measures such as granting ICO guarantees to young people for 20% of the loan.
“Credit risk will continue to be a supervisory priority for many years and in no case are we going to allow a softening of the criteria for granting housing credit,” said the General Director of Supervision of the Bank of Spain, Mercedes Olano. . The banking model focuses on granting credit, and housing accounts for most of it, she explains.
Olano made this warning during the presentation of the annual supervision report of the Bank of Spain. The institution is “relatively calm” with the current developer and mortgage risk and sees contagion from other countries where the mortgage market does generate tensions as “difficult.” However, he insists that he will not let his guard down.
Over the past year, the Bank of Spain inspected three Spanish banks as part of a European campaign to detect risks in the real estate sector. The campaign targeted almost twenty European banks and detected several weaknesses in the euro zone related to the way credit is granted, provisions and valuation of collateral. “In general, Spanish entities have performed well,” said Olano.
Apart from these European campaigns, the Bank of Spain carried out 19 on-site inspections of Spanish banks last year. Six of them were focused on risks in granting credit, three on business models and two on technological risks. 93 letters were sent with 508 requirements, in an exercise in which attention was paid to the resilience of banks in the face of macrofinancial and geopolitical events.
The Bank of Spain supervisors are closely monitoring the geopolitical situation following last weekend’s attack by Iran on Israel, which could affect the granting of credits. They also analyze the chain of technological suppliers of Spanish banks, looking for Israeli companies whose services may fail due to a broader conflict in their country. Olano has assured that, after analyzing a subcontracting chain of ten links, no risks have been detected.
Another element that supervisors watch closely are bank deposits. Of the 153 supervisory actions last year, 43 are related to accounts and deposits. “Last year’s crisis in the United States has put a risk of liquidity and deposit outflows on the table,” which has caused the Bank of Spain to launch “a review of the deposit structure.
Also worrying are the “many consumer complaints” related to cyberattacks and fraud. To establish a criterion, the Bank of Spain is paying attention to whether or not the affected consumers performed double authentication, which can serve as an indication to determine the existence of a scam. “This is what we have to distinguish between clear fraud and a matter of misuse of authentication keys,” Olano indicated.
There are other matters of interest, including some suspicion about the future financial customer protection authority. The Director of Supervision warns that the new body will prevent the Bank of Spain from having direct access to consumer complaints, from which it makes its analyzes and recommendations. “We are going to need good collaboration,” she indicated.
The annual supervision report includes a letter from the governor of the Bank of Spain, Pablo Hernández de Cos, in which banks are called for “prudence” after the strong increase in profits last year. The increase in profitability, he warns, “has only modestly translated into an increase in solvency.”
“Entities must be prepared for an eventual deterioration in credit portfolios derived from the increase in the cost of debt service for borrowers,” he states.
