Indeed, in recent months the markets have lowered their expectations in terms of the growth of European banks’ profits. Low or negative interest rates restrict the unit interest margin banks can obtain. However, from a general equilibrium perspective, they also increase credit, reduce bad debts and raise the value of the financial and real assets banks hold on their balance sheets. As a result, the net aggregate effect on bank profitability in general has so far been positive overall. That said, this effect will foreseeably diminish insofar as the situation of negative interest rates is prolonged over time. Indeed, a positive note regarding the most recent developments in profitability is that net interest income has increased following years of stagnation at low levels. In any event, the decisions adopted by the ECB Governing Council at its meeting on 12 September, including the 10 bp reduction in the deposit facility rate to -0.5%, the resumption of net purchases under its asset purchase programme and the strengthening of forward guidance, have been accompanied by mitigating measures. These include the application of a two-tier system for reserve remuneration, designed precisely to ensure the effectiveness of monetary policy transmission through the bank channel. There is also theoretical and empirical evidence that low interest rates transmit the monetary impulse by encouraging banks and other financial intermediaries to take risks. Fortunately, we currently have various macroprudential policy instruments, which I shall refer to later, designed to mitigate the potential build-up of risks that may affect financial stability through this channel.

In the case of households, the credit terms of mortgage loans are much stricter than those observed pre-crisis, and in recent quarters no signs of easing have been perceptible. For example, in the case of the loan-to-price ratio (LTP), there has been a reduction in the weight of more leveraged transactions (with an LTP of over 80%) compared with the crisis years. Moreover, the average LTP is also lower. By way of exception, consumer lending and its attendant bad debts quickened once again in the final quarter to year-on-year rates of 12% and 26%, respectively, slightly raising the NPL ratio of this business segment to 5.6%. And this against the background of the considerable slowdown in private consumption in the economy. In terms of solvency, from June 2018 to June 2019 the CET1 ratio increased by somewhat over 30 bp to stand slightly over 12%. The rise was based essentially on an increase in reserves. This improvement in solvency was concentrated in the biggest institutions which are, precisely, those showing lower levels. Moreover, the bulk of the capital materialises in instruments with the biggest loss-absorption capacity. Compared with the other European countries, Spanish institutions have a top-quality CET 1 capital ratio almost 3 pp below the European average, whereas in terms of the leverage ratio, Spain stands slightly above the same average. It is well-known that this difference in Spain’s relative position in respect of these two solvency measures is due to the fact that the density of risk-weighted assets is higher in Spain.