The deputy governor of the Bank of Spain, Margarita Delgado, has warned that financial institutions must continue to monitor their credit quality and take measures that allow them to adequately manage their credit risk in the face of the foreseeable tightening of financing conditions, with a greater impact on companies most indebted and vulnerable families.

During the institutional inauguration of ING’s corporate headquarters in Madrid, the deputy governor recognized that Russia’s invasion of Ukraine is a new disturbance that adds uncertainty to the recovery, with foreseeable consequences for economic activity and also puts additional pressure on inflation.

Although she has highlighted that Spanish banks have “minimal” financial exposures to Ukraine and Russia and that the commercial channel of the Spanish economy “is not relevant”, the deputy governor has warned that the indirect effects may be important, especially through the channel confidence and uncertainty with impacts on the economy.

Delgado has recognized that the European and Spanish banking sectors are facing the disturbance that the war represents from a situation of recovery and resilience, having recovered pre-pandemic levels of profitability and with stability in solvency levels.

However, he stressed that in Spain there are still sectors that have not fully returned to their level of activity after the health crisis or are being more affected by the energy and raw material shocks, for which he has again launched the message that , “in the face of the foreseeable tightening of financing conditions with a greater impact on more indebted companies and vulnerable families, financial entities must continue to monitor their credit quality and take measures that allow them to adequately manage their credit risk”.

In this context, the deputy governor has referred to two structural challenges that banking already faced before the pandemic, such as the concepts of profitability/efficiency, digitization and competition from new actors, and the challenges of transforming the economic model towards one more sustainable.

“The degree to which the banking business is evolving is so fast that it is currently considered one of the biggest challenges facing the sector. To be properly positioned, it is necessary for the heads of the entities to be fully aware of this fact and are knowledgeable about the matter in order to avoid fear of the unknown, which would lead to avoiding innovations and would leave entities in a vulnerable situation before the rest of the sector”, he pointed out.

Regarding the transformation towards more sustainable models, Delgado highlighted the role of the financial sector as a channeler of resources in said process, which is already assuming “a transformation in risk management, in which sustainability factors already enter as a element to take into account.

“An adequate analysis of how physical and transition risks influence the risk profile of entities is essential to carry out correct climate risk management. To do this, obtaining quality data, with sufficient historical depth and based on clear and homogeneous definitions at the international level is key. This is a global risk that must be addressed in a coordinated manner at the international level,” he warned.

Finally, the deputy governor of the Bank of Spain concluded by congratulating ING on its new corporate headquarters, which is “an example of the entity’s commitment to modernity and sustainability; two essential elements for success today”.