Non-performing loans continued to decline in 2015, falling by more than € billion (against the fall of € billion in 2014). At end-2015 the proportion of NPLs on Spanish banks’ balance sheets was 22% down on the previous year. This trend has been seen both in credit to non-financial corporations and in that to households. Profitability is unquestionably a fundamental challenge facing European and Spanish banks. In 2015, consolidated income at the global level for the sector as a whole was close to € billion, almost 13% down on the previous year; and the return on equity fell from 6.9% in  BIS central bankers’ speeches  1  2014 to 5.6% in 2015. In terms of domestic business, profitability was worse than for consolidated activity at the global level, with the ROE in 2015 standing at 4.4% (against 5% in 2014). The main factor bearing down on the sector’s profitability may be said to be the environment of very low interest rates, and this environment might be expected to hold as long as inflation expectations justify the highly expansionary monetary policy stance in the euro area. The spread between the return on assets and liabilities in domestic business is at levels very close to all-time lows. Also, there is little room for further downward movement as regards the cost of funds; accordingly, if asset-side rates continue falling, net interest income may continue declining. But we should mention another two factors bearing down on profitability.
The high level of public debt is harmful to the economy’s financing conditions, it restricts the countercyclical leeway of budgetary policy and it means a high volume of resources must be set aside to pay the interest burden. There is room, moreover, for the fiscal consolidation process to be compatible with a revision of the structure of public revenue and spending, making it more efficient and  3/5  enhancing its contribution to growth. And, at the same time, a greater degree of fiscal coresponsibility should be promoted across the different tiers of general government. It is likewise a priority to pursue further reductions in unemployment and its persistence among specific groups, especially the lesser-skilled. The high level of joblessness is also closely related to the notable increase in inequality that came about during the crisis. Achieving this will require not only labour market measures but also, more broadly, actions targeting employee skills and training, to encourage their greater adaptability to a new environment marked by technological progress, the automation of productive processes and the knowledge economy. In parallel, despite the significant progress in recent years, the financial sector continues to face deep-seated challenges. These include the need to tackle the effects of the farreaching changes in regulation, technology and competition, to improve low profitability levels and to complete the ongoing reduction of problem assets. Looking ahead to the medium and long term, population ageing is probably the main challenge the developed societies face.