But, additionally, in a crisis like this, as I have mentioned earlier, the deterioration of banks’ solvency is expected to hinge on their degree of exposure to the various regions and sectors which are being affected differently by the pandemic. In any event, as in the case of households and non-financial corporations, the public support measures implemented in recent months will help to mitigate the effects on financial stability. In particular, the government loan guarantee scheme and the various measures adopted by the ECB will contribute to smoothing the impact on banks’ solvency. The restrictions on the payment of dividends by banks also contribute significantly to this objective. And, lastly the moratoria will be useful so that the classification of loans as nonperforming is eased and distributed over time. Nevertheless, the impact of the COVID-19 crisis on financial institutions’ profitability is already clear. The banking industry’s already narrow profit margins of recent years – profitability actually stood below the cost of capital in the main European banking systems – were squeezed even further by the outbreak of COVID-19 and the need to record higher provisions to cover adverse developments in banking. Specifically, data from the first half of 2020 showed that listed Spanish banks had consolidated net losses of € billion, compared with profits of a similar order of magnitude in the same period in 2019.
At the same time, persistently high public debt (as will inevitably be generated by this crisis) would reduce the scope for action in response to future adverse shocks, expose the economy to a situation of chronic vulnerability and limit its growth capacity. In this situation, we should accept that the necessary short-term fiscal expansion must be accompanied by an ambitious reform agenda to address the structural challenges facing the Spanish economy and a fiscal consolidation programme, to be implemented as soon as the recovery firms. Without doubt, further analysis and experience will be required before we can draw all the lessons from this crisis. However, we should be aware, in any event, of the unprecedented scale of the collective challenge that we as a society face to return to a path of prosperity and opportunities for all. Hence, once again, I advocate broad-based agreements to shape the urgent, ambitious and comprehensive growth strategy that Spain currently needs. The financial system can and should make a significant contribution in this regard. Thank you for your attention. 17