1  2 percentage points (pp) on June 2019. This was higher than our estimated cost of capital for the period (7%, similar to the level estimated prior to the pandemic). This improved profitability owed to a better performance in banks’ recurring business, with growth of more than 10% in net interest income and in fees and commissions. It is worth noting here that banks are beginning to pass through the increase in money market interest rates to new loans, albeit, for the time being, far more slowly than in the past. Evidently, for variable-rate loans the impact is automatic, but it will likewise take some time. For their part, banks’ wholesale funding costs are reflecting the tightening of financial market conditions, while risk premia are also rising. As yet, however, deposit interest rates have not increased, and to June there has been no significant shift of funds towards term deposits. Further, listed banks as a whole recorded a year-on-year increase in impairment losses to June, as a result of specific contributions from business abroad, but at most banks these impairment losses declined. In any event, impairment provisions remained slightly higher than those recorded before the onset of the pandemic. Third, as regards solvency, the overall common equity tier 1 (CET1) ratio of Spanish banks stood at 12.9% in June 2022, down 50 basis points (bp) on a year earlier, but 70 bp above the pre-pandemic level (12.2%). The recent reduction owed to the increase in risk-weighted assets, since the numerator of the ratio barely changed.
Concluding remarks In short, we are in the midst of a highly complex macro-financial situation, characterised by high inflation, a tightening of financing conditions and greater uncertainty, which has already triggered a slowdown in economic activity in Q3 and a widespread downward revision in the growth outlook for the coming quarters. Against this backdrop, although the banking sector’s starting point is positive, it is necessary to exercise the utmost prudence and to closely monitor risks, which may rapidly take a turn for the worse, making it necessary to consider new stress scenarios. All of this leads us to recommend that banks be very careful in their provisioning policy and their capital planning over the coming quarters. 6