The main driver of the improvement in ordinary profit was the reduction in impairment losses, which fell by 43.5% compared with 2020 to € billion, a somewhat lower level than in the two years prior to the pandemic. The recovery in profit in 2021 was widespread across the main countries where Spanish banks pursue significant international business. Profitability also improved at the European level, following the notable decline in the previous year, returning to close to prepandemic levels. As in Spain, the main driver of this improvement was the significant fall in impairment provisioning. The breakdown shows that gross income rose by close to 3% in 2021, driven by the timid recovery in net interest income9 and, above all, by a 10.4% increase in net fees and commissions, which more than offset the drop in gains on financial assets and liabilities. In any event, net interest income remained lower than in 2019.10 Fee and commission income has increased in recent years,11 mainly on account of payment services, although it is still low compared with Spanish banks’ main European peers. Profitability remained positive in 2022 Q1. Thus, ordinary profit at the six listed banks rose by more than 30%12 year-on-year, with increases of 9%-10% both in net interest income and fee and commission income. Meanwhile, impairment losses fell by 9% compared with March 2021. It must be noted, however, that the full economic impact of the war in Ukraine did not materialise in the first quarter of the year.
The credit quality of loans backed by the State through the Official Credit Institute (ICO) deteriorated somewhat in 2021, although at a slower pace than in the previous half-year. At December 2021, 20.2% of ICO-backed loans were classified as Stage 2 exposures (up 3.9 pp on June 2021), and 3.5% as NPLs (up 1.4 pp on June 2021). It must be noted, however, that 30% of these loans continue to benefit from grace periods, which will come to an end in summer 2022.6 In the present setting, these credit exposures with some sign of impairment may, in turn, be more vulnerable to the materialisation of risk. Accordingly, careful monitoring is needed, together with early and correct recognition of potential losses. Third, profitability improved substantially7 in 2021. Specifically, return on assets (ROA) stood at 0.67% (compared with -0.21% in 2020 and with 0.51% in 2019). 6  In the sectors hardest hit by the COVID-19 crisis, the proportion of Stage 2 loans is higher (35.5% and 22.7% in hospitality and transport, respectively); this is also true of NPLs (6.5% and 4.5% in hospitality and transport, respectively). 7  Consolidated net profit totalled € billion in 2021, an increase of € billion on the losses recorded in 2020. 7  Extraordinary items, which were negative in 2020 and positive in 2021,8 had the most impact on profitability. Excluding extraordinaries, ROA stood at 0.57%, an increase of 37 basis points (bp) on 2020 and down just slightly compared with 2019 (0.63%).