Spain has made relatively more progress than other euro area countries in reducing the volume of non-performing loans built up during the crisis. Moreover, economic growth – albeit at lower rates – can be expected to continue to help to gradually reduce them over the next few years. Despite these improvements, the level of unproductive assets of Spanish banks (especially those related to business in Spain) remains relatively high and above precrisis levels. 3/11  Reducing unproductive assets continues to be a challenge for the industry, requiring banks to strengthen the application of active management policies to their impaired assets. In this respect, the agreements to sell troubled asset portfolios announced over the past year will accelerate the reduction of future NPL ratios more than initially estimated solely on the basis of the cyclical improvement in the economy and the experience of previous credit cycles. In order to address this challenge, which most other European banks also face, the European economic and supervisory authorities have taken initiatives to accelerate the reduction of NPLs. In particular, the European Commission announced a package of measures in March this year, which included a proposal to review the capital requirement regulations and an NPL provisioning schedule. Correcting the high level of impaired assets is key for two basic reasons. First, because the balance-sheet clean-up will improve banks’ profitability and solvency. That is to say, it will free up resources currently devoted to financing unproductive assets and allow them to be used to finance new lending.
In particular, I would like to mention that the ECB made recourse to these operations repeatedly in August 2007 and again in September this year to provide overnight liquidity in addition to the liquidity provided at its weekly main refinancing operations. In addition, as already mentioned, in the past two weeks, overnight fine tuning operations have been used regularly to re-absorb the excess liquidity provided to the euro money market. 2. The Eurosystem has very significantly increased the average maturity of its lending to euro area banks. The outstanding amount of refinancing provided via longer-term refinancing operations has increased by around € billion since 2007. The latest measure in this respect consists of a series of special term refinancing operations with a maturity of six weeks, which were launched in September 2008 and will be continued until at least beyond the end of the year. Consequently, and in order to keep the total amount of outstanding refinancing unchanged, the amount of liquidity provided via the one-week main refinancing operations has been reduced correspondingly. 3. On 8 October, due to intensified tensions in the financial market, the ECB took the absolutely exceptional decision to adopt a fixed rate tender procedure with full allotment for all its weekly main refinancing operations as long as market conditions dictate. Third, in October 2008 the ECB reduced the corridor of the standing facilities around the interest rate on the main refinancing operations was reduced from 200 basis points to 100 basis points.