22.03.2021  The challenges to the banking sector a year after the outbreak of the COVID-19 pandemic 1st “Observatorio de las Finanzas” Symposium (El Español/Invertia) Pablo Hernández de Cos Governor  Good evening ladies and gentlemen. I should like to thank the organisers of this 1st “Observatorio de las Finanzas” Symposium staged by El Español/Invertia for inviting me to deliver this opening address. This forum has proven timely; the challenges posed by the pandemic make it particularly important for the main financial institutions and the regulatory and supervisory authorities to pool their views on the situation of the Spanish financial system. To contribute to this debate, I shall analyse today what the banking sector’s pre-crisis starting point was, the impact of the crisis over this first year, the current situation and the challenges ahead. The starting point: a more resilient banking sector As we know, the COVID-19 pandemic strongly impacted Spanish economic activity in 2020. GDP underwent a year-on-year decline of 11% last year, marking an unprecedented peacetime contraction. This decline has been appreciably steeper than that of other, comparable euro area economies. This relatively worse performance has been due, at least in part, to structural factors, such as the greater weight in our economy of the services sector. The adverse impact has been particularly severe in some sectors of the economy (hospitality, retail and wholesale trade, transport, etc.) and in specific population groups (in particular among the lesser skilled and young adults).
Starting positions, in terms of equity and credit quality, were already divergent. Moreover, in a crisis such as the current one, in which the pandemic is affecting different regions and sectors of activity in different ways, the worsening of banks’ solvency will foreseeably hinge on their degree of exposure to such regions and sectors. The current situation: the importance of maintaining stimulus measures and targeting them more specifically The current macroeconomic setting is characterised by an incomplete, gradual and uncertain recovery. Indeed, as a result of the restrictions on mobility that had to be applied in the first quarter, a further decline in GDP in this period cannot be ruled out. This would mean that, at end-March, GDP would still be slightly over 9 pp below its pre-crisis level. In any event, we should acknowledge that the development of effective vaccines against the virus has contained some of the risks to the economy. And, in turn, this has equipped the authorities with what is, in fact, also the best economic policy tool available to usher in the recovery: the roll-out of vaccination programmes that allow for the progressive lifting of the restrictions on economic activity. In this situation, retaining the exceptional support measures for the economy is warranted until the recovery firms. This support is also crucial for preventing the crisis from being compounded by a financial component that would deepen and lengthen it.