Figures for the first nine months of 2014 confirm that the sector has left behind the losses recorded in 2012. This better performance is underpinned by both the reduction in operating expenses and the lower provisioning needs derived from asset value adjustments. Net interest income, under downward pressure from limited business activity and low interest rates, increased moderately in 2014 compared with the same period in 2013. That said, this recovery is as yet modest and the downside pressures on the statement of income persist, meaning banks must persevere in containing their operating costs. iv. Solvency  Attesting to Spanish banks’ solvency were the results of the stress test conducted before the start-up of the SSM, in 2014. As you will recall, no Spanish bank had to submit a capitalisation plan at the end of the year, even under the worst scenario considered. That is to say, under a hypothetical highly adverse macroeconomic scenario, all the participating Spanish banks evidenced solvency levels above the thresholds demanded by the European Central Bank and the European Banking Authority, the two institutions responsible for conducting the test. The latest available figures, for December 2014, confirm that the Spanish banking sector as a whole is operating with solvency levels that comfortably exceed the minimum regulatory levels required. Indeed, the top-quality common equity Tier 1 (CET1) ratio stands at 11.8% for the sector as a whole, well above the minimum regulatory level of 4.5%. The total capital ratio was 13.6%, also above the regulatory level of 8%.
Our current forecast – which is scheduled for review in June, September and December – is for Spanish GDP to grow by 2.8% over the course of 2015, and by 2.7% in 2016. As to employment, the March figures reinforce our view that the unemployment rate should continue to fall, down to around 20% of the labour force by the fourth quarter of 2016. In Europe, the figures appear to support the view that the risks of deflation have been averted and that the economies of the Monetary Union and of the European Union as a whole are recovering and gaining momentum. If the Spanish economy is to benefit from these changes and likewise enjoy sustained higher growth, it will be essential to persevere with the reforms geared to adding market flexibility and boosting investment. Admittedly, however, the European and international financial context is unprecedented. The US exit from quantitative easing, with the interest rate rises that the markets expect, and the proliferation of negative interest rates on various financial and government debt markets, make for an unprecedented scenario that poses undoubted risks to financial stability with potentially highly volatile movements in financial asset prices. But if the risk of deflation in the euro area has finally been averted, and the US economic recovery continues apace, we may expect the financial markets to return to normal and yield curves to move back in step with normal, sustained economic growth. 4  BIS central bankers’ speeches