Banco de España Deputy Gov: Loan Moratoria and Guarantees Must Be Withdrawn Gradually

20 October 2021

By David Barwick – FRANKFURT (Econostream) – As the pandemic-related crisis becomes less acute, the gradual withdrawal of loan moratoria and guarantees will be appropriate, Banco de España Deputy Governor Margarita Delgado said Wednesday.

In remarks at a forum, Delgado said that targeted longer-term refinancing operations and asset purchases had been ‘key to preventing any tightening of economies’ financing conditions against a background of strongly increasing public sector financing needs.’

However, she said, ‘as the progressive improvement in health conditions continues (success of vaccination policies), and economic activity picks up’, moratorium loan programmes and public loan guarantee schemes must be ‘reviewed and gradually adapted to the current situation.’

To be sure, she said, such support should be kept in place long enough to ensure the recovery, but ultimately, its ‘amendment and progressive withdrawal is required to avoid the current dependence on public intervention’, as this could ‘distort resource allocation, postpone necessary structural adjustment, drain fiscal resources and, in the end, increase public debt, depressing investment and growth.’

The withdrawal of this policy support could occur in tandem with targeted measures ‘if financial stability risks materialize in the recovery phase’, she said. This would apply in particular to small and medium-sized enterprises as well as those sectors that were hardest hit, and the measures could be designed to differentiate on the basis of borrower viability, she said.

The ‘pace and degree of intensity in withdrawing the support plans currently in force are going to play a key role in the recovery of the economic growth and in the potential risks that may impact on financial stability’, she said.