Secondly, banks should strengthen their capital and the liabilities susceptible to be used in the event of bail-ins in order to face on an optimal footing the regulatory challenges still pending, particularly in respect of resolution. Thirdly, the financial sector should strive in particular to enhance its reputation and to introduce measures mitigating the risk of misconduct. Fourthly, banks should address the challenge of increasing their profitability, although this cannot be at the expense of an undue easing of lending standards. Finally, and clearly not least importantly, the new technological environment, while a major challenge for the sector (in particular because of the emergence of new competitors and services), is also an opportunity that Spanish banks should take advantage of. Allow me to conclude by pointing out that, with a view to furthering the current growth phase and entrenching the Spanish economy’s potential, it is essential in my opinion to harness the still-favourable cyclical juncture to create budgetary space ahead of future recessions and introduce reforms to take over from the expansionary demand-side policies of recent years. It is likewise vital to address the challenges the banking sector has still to face, such as the reduction in non-earning assets, the improvement of its capital structure and profitability, the strengthening of its reputation and the optimal harnessing of technological developments.
In the office space sector, new square meters built were not matched by an equivalent increase in demand, generating a significant increase in the vacancy rate, as we warned in previous Reports. These levels could remain for a prolonged period due to the inertia of the market and the incorporation of new projects (figure 11). Aggregate household indicators remain relatively stable, but with some of them showing a marginal deterioration. The debt over disposable income rose in 2014, while the financial burden remained around 14 percent of income, due to low interest rates (figure 12). The lower interest rates facing households are also the result of a change in debt composition, away from higher-rate consumer loans to lower-rate mortgage loans. No changes in indicators of bank default are seen, whereas in non-bank lenders a new increase is observed. This latter phenomenon is partly explained by regulatory adjustments, although a worsening of the credit portfolios of said lenders cannot be ruled out. Commercial and consumer credit exhibit bounded growth rates, not so mortgage loans, which remain strong (figure 13). The behavior of commercial and consumer loans is in line with the slower growth in private spending. Demand-side factors could be behind these dynamics, as suggested by the Bank Lending Survey. The expansion of mortgage lending is largely explained by the increase in the average debt, which is consistent with the dynamic of housing prices and debt to collateral ratios, which have remained stable. Bank financial indicators have been stable.