Luis de Guindos European Central Bank warns banks that non-performing loans will "surely" rise in the coming months and reiterates the request for prudence.
Raising interest rates is one of the great wishes of the bank.
Its core business of borrowing money cheaply and lending it more dearly is based, precisely, on the existence of positive interest rates.
The negative rates of the European Central Bank (ECB) have created an adverse scenario and contrary to monetary logic in recent years, which is now going to begin to change.
However, this shift in monetary policy is not without risk.
Luis de Guindos European Central Bank
Luis de Guindos, vice-president of the ECB, has warned that a more perspective analysis of the economic situation is needed in his intervention in the course Sustainability and recovery: the levers of economic change, organized by the APIE together with the Menéndez Pelayo University and BBVA that is being held these days in Santander.
"If you focus on a partial analysis, you will conclude that it is incredibly positive, but you have to do a more general analysis.
When you look at it from the point of view of general equilibrium, you have the positive side, but also an economic slowdown and that your customers may have more difficulties paying for loans," said De Guindos.
"Surely the delinquency is going to rise and that has to be put in a context of economic slowdown and that has to be put in a context of high inflation that in the case of families reduces their ability to pay," he said.
Luis de Guindos European Central Bank message
With these envelopes, the vice-president of the ECB has once again launched a message of caution to the banks. "It is very important that the banks are prudent, that they continue with the appropriate levels of provisions," he said.
The uncertainty generated by the war in Ukraine also makes the ECB raise a more adverse scenario in which the euro area would enter recession in 2023.
The announcements of the ECB's interest rate hike on June 9 caused turbulence in the markets, which began to put pressure on peripheral risk premiums. A scenario that led to an extraordinary meeting where a mechanism was announced to try to avoid this pressure.
De Guindos explained that "things happened" between the two meetings, elements that affected all the markets that the ECB must consider and when these circumstances changed, the extraordinary council reiterated its commitment against market fragmentation.
Luis de Guindos European Central Bank warning
The Vice-President of the ECB stressed that this mechanism, which allows to fight against fragmentation, leaves more scope for the body to focus on monetary policy.
"I think that if monetary policy is convinced that anti-fragmentation instruments can fight fragmentation, it can focus on fighting the rise in inflation," he said given that "it leaves monetary policy freer hands."
In this sense, De Guindos has pointed out that what fragmentation implies is that a family or a company in Spain, in Italy or in another potentially vulnerable country must pay more costs as a result. The vice president has pointed out that a difference between risk premiums is understandable because the country risk is not the same, but that there are other extraneous factors that can be controlled with this mechanism.
"What it implies is that the monetary policy impulses do not reach all markets in a homogeneous way. It puts financial stability at risk. Increasing premiums, this moves to the most vulnerable countries and ends up moving to the real economy," he said.
