Thus, while total NPLs extended to business activities presented a year-on-year decline of -1.8% in December 2020 (-1.5% in March 2021), the hospitality and transportation sectors posted increases of 5.8% and 19.2% (rising to 14% and 44% in March 2021), respectively. In December 2020, these two sectors represented around 15% of Spanish banks' loans to  6  Pursuant to Circular 4/2017, a loan is classified as a Stage 2 exposure when credit risk has increased significantly since initial recognition, even though no event of default has occurred. 7  non-financial business activity, while the group of severely affected sectors accounted for 20% and the moderately affected sectors a further 30%. Specific credit risk analysis of the firms and households that have benefited from ICO guarantees or from moratoria can help predict potential future impairments when the measures are progressively withdrawn. For instance, analysis of the relative position of firms that obtained ICO-backed loans reveals that these presented an, ex ante, higher risk profile.7 As regards the classification of loans whose moratoria were no longer in force at end-2020 (either through expiry or cancellation), around 20% were in Stage 2 and 8% were classified as non-performing.8 We should bear in mind that at end-2020 ICO loans represented around 19% of total lending to businesses, and loans with moratoria accounted for 5.3% of loans to households. Approximately 80% of the outstanding moratoria as at December 2020 expired in June 2021, and virtually all of the rest are expected to do so before end-2021.

Included here are physical risks, associated with the materialisation of an effective worsening of climate conditions 13  (e.g. more frequent and longer-lasting droughts, greater likelihood of fires), and transition risks, linked to the adoption of new regulations and taxes and to the transformation of the production process, aimed specifically at mitigating climate change. Intervention by fiscal and environmental authorities is key to achieving an orderly and predictable energy transition. But it is also important that the banking sector allows the financial risks present in the different stages of this process to be duly reflected. We financial supervisors must ensure that banks indeed correctly assess the risks, and promote the development of appropriate reporting standards and databases to measure them. Conclusions In view of the pandemic’s unprecedented economic impact, the Spanish banking sector has emerged as a mitigant of the shock and is called upon to play a key role in financing the recovery. This has been possible for two reasons. First, the sector's healthier starting position, following its restructuring, and the prudential regulations adopted after the global financial crisis. Second, the essential role played by the public support measures in mitigating the impact of the crisis on borrowers’ credit quality, thus preventing a financial crisis component that would have made it deeper and longer-lasting. That said, the crisis has had an adverse and heterogeneous impact on the sector’s profitability, although solvency and default rates have not suffered to date thanks to the support measures adopted.