ECB’s de Cos: NPL Rate to Rise Significantly Even in Best-Case Scenario

14 January, 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Pablo Hernandez de Cos on Thursday warned that the rate of non-performing loans would rise considerably in the next quarters even in a best-case scenario.

According to a text provided by the Bank of Spain, which he heads, De Cos said in a speech at Spain Investors Day devoted largely to the Spanish banking sector that an ‘initial positive diagnosis should not lead us to complacency since, as we all know, the magnitude of the disturbance is very high.’

Even with vaccines now available, he said, ‘the duration of the crisis is uncertain, as we are seeing from the appearance since last fall of new outbreaks of the virus in practically all the countries of the world.’

How banks ultimately fare in the crisis depends also on how much economic policies cushion the blow to households and non-financial corporates, he said. The impact on them so far has been ‘considerable’, even though ‘an increase in non-performing loans has not been observed, which is explained, to a large extent, by the wide range of measures adopted by the different authorities.’

‘In this sense, in the current situation of incomplete, uncertain and uneven economic recovery, it is justified to maintain a large part of the exceptional measures to support the economy, particularly for certain sectors’, he continued. ‘In any case, the projections suggest that there will be a significant increase in the rate of non-performing loans in the coming quarters, even in the mildest scenario.’

Still, he said, the banking sector has so far helped mitigate the risks stemming from the crisis, he said, rather than amplifying them.

‘The response of the prudential authorities, together with the monetary and fiscal policy measures adopted, has so far made it possible to absorb the initial impact of the shock and has prevented the materialization of a systemic risk in the financial system that would have further accentuated the crisis and it would have made her more persistent’, he said.

De Cos urged completion of the Banking Union along with pan-European deposit insurance as ‘a decisive contribution to guaranteeing financial stability in the euro area, both in the coming months and in the medium-term horizon.’