To sum up: the Spanish banking industry has proved resilient to the economic crisis triggered by the pandemic, maintaining the supply of credit to the private sector and an adequate solvency level. It has also been able to swiftly recover its profitability. The banking sector in the new macro-financial climate Despite these favourable circumstances, the recent macro-financial deterioration I described earlier calls for a prudent approach on the part of banks and for close monitoring of the risks associated with the Ukrainian conflict. Indeed, as noted above, these factors have led to a downward revision to the economic outlook published by the Banco de España for 2022 and 2023, as well as a significant upward revision to our inflation projections for 2022. Against this backdrop, our latest Financial Stability Report, published in May, included some simulation exercises on the impact of a potential rise in interest rates or energy prices on the economic and financial situation of Spanish firms, households and general government. I will now turn to the results of these exercises, updated to include the latest developments and market expectations of interest rate hikes. Thus, in the case of businesses, an interest rate hike could drive up the percentage of firms under financial pressure. Specifically, within corporate bank financing, short-term and variable-rate loans predominate, and changes in interest rates therefore pass through relatively swiftly.
7  quarters that the effect of nominal GDP growth is correctly interpreted, as it could have a less beneficial impact than in previous periods on the sustainability of private debt, given that it would be more closely related to higher production costs which drive down agents’ income. Likewise, the tightening of financial conditions would drive up the debt service ratio. Developments in the Spanish banking industry  As regards bank balance sheet credit quality, non-performing lending to the resident private sector fell by 5.4% in 2021, a drop which quickened to 7.1% year-on-year in 2022 Q1. This decline confirms the differential performance of non-performing loans (NPLs) in this crisis, with the economic policy measures proving crucial in maintaining households’ and firms’ ability to pay and their net lending. Thus, the NPL ratio for credit to the resident private sector stood at 4.1% at March 2022, compared with 4.8% at end2019. Despite this good NPL performance, there are potential latent impairments in some credit portfolios, particularly those linked with the most vulnerable segments of firms and households. Specifically, Stage 2 loans5 continued to rise at high rates at end-2021 (14% year-on-year), although notably below the growth rates of previous quarters. Meanwhile, Stage 2 loans accounted for 8% of all loans, up 2.2 pp on pre-pandemic levels. Forborne loans,6 the bulk of which are classified as Stage 2 or non-performing exposures, also rose by 14% in 2021, owing to a sharp rise among NFCs and sole proprietors.