Pablo Hernández de Cos: The Spanish banking industry - developments and challenges against a backdrop of uncertainty

Speech by Mr Pablo Hernández de Cos, Governor of the Bank of Spain, at the 14th Financial Meeting, organised by Expansión, Madrid, 9 October 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I would like to thank the newspaper Expansión for inviting me to take part in this 14th Financial Meeting and giving me this opportunity to share with you the Banco de España's latest assessment of the Spanish banking sector and the challenges ahead. To set this analysis in context, I will first outline the macroeconomic outlook and the most recent monetary policy decisions taken by the European Central Bank (ECB).

The euro area economy and monetary policy

Against a backdrop of high and persistent inflation, the ECB Governing Council has adopted very forceful measures since late 2021 to ensure that inflation returns to its 2% medium-term target.

Interest rates have been raised by 450 basis points (bp) since July 2022, the largest and fastest increase in the history of the euro area, with the deposit facility rate set at 4% in our September meeting. The balance sheet reduction has also been extraordinarily swift, even compared with other central banks.

In recent months the ECB has based its decisions on an overall assessment of the macroeconomic situation, the inflation outlook – in particular for underlying inflation – and monetary policy transmission. Allow me to outline my current view of these three aspects.

Economic growth in the euro area was very slow in the first half of year, with indicators for the third quarter suggesting that the weakness has intensified, spreading across sectors and countries, and is beginning to feed through to employment indicators. In fact, the ECB's September projections for the second half of the year have been revised down and now point to stagnant economic activity.