Spain | Bank profitability in the face of a very demanding environment

Summary

Before the outbreak of the COVID-19 crisis and the impact of the lockdown measures (which is still not possible to quantify in full), Spanish banks were already facing an environment in which it was widely accepted that the profitability of the system would be, at best, limited.

Key points

• Key points:
• It is now clear that the banks are facing a perfect storm in terms of their ability to generate profitability.
• At least in the short term, the impact of the pandemic comes on top of the negative interest rate environment and regulatory requirements.
• The decline in economic activity caused by government-imposed lockdown measures has meant the biggest fall in GDP in our history.
• In 1Q20, Spanish banks tripled their provisions, expecting to see exponential growth in non-performing loans due the impact of the COVID-19 crisis.
• The European Central Bank and the governments have also launched a number of measures to combat the crisis, many of which directly affect the banking sector.

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