It would not be acceptable for the search for an alternative source of income in the short term to become once again a potential source of future losses. In this respect, price-setting policies at product or service level are fundamental to ensure an appropriate risk-adjusted profitability. These policies must be consistent, comprehensive and rigorous to ensure that the price charged for a product or service covers at least its total cost, including the risk premium inherent in each type of transaction. From the viewpoint of appropriate risk management, controlling the risks incurred, assessing how they develop over time and applying conservative conditions when negotiating the rollover of loans are basic elements of credit standards that banks must observe and keep up to date in their policies. Moreover, from the viewpoint of customer protection, the appropriate assessment of their solvency and capacity to repay is also protection against future vulnerabilities (see Chart 5). 5/11  Reputation and conduct One of the largest challenges facing banks today is precisely that of managing one of their main assets: their reputation, which is fundamental to generate the appropriate framework of trust within which to develop customer relations. The reputation of banks was eroded during the last crisis, not only as a result of management failures in part of the system, but also as a result of inappropriate marketing to customers, which undermined their trust. In fact, the number of complaints by customers to banks’ customer complaints services increased almost six-fold between 2014 and 2017.

Spain has made relatively more progress than other euro area countries in reducing the volume of non-performing loans built up during the crisis. Moreover, economic growth – albeit at lower rates – can be expected to continue to help to gradually reduce them over the next few years. Despite these improvements, the level of unproductive assets of Spanish banks (especially those related to business in Spain) remains relatively high and above precrisis levels. 3/11  Reducing unproductive assets continues to be a challenge for the industry, requiring banks to strengthen the application of active management policies to their impaired assets. In this respect, the agreements to sell troubled asset portfolios announced over the past year will accelerate the reduction of future NPL ratios more than initially estimated solely on the basis of the cyclical improvement in the economy and the experience of previous credit cycles. In order to address this challenge, which most other European banks also face, the European economic and supervisory authorities have taken initiatives to accelerate the reduction of NPLs. In particular, the European Commission announced a package of measures in March this year, which included a proposal to review the capital requirement regulations and an NPL provisioning schedule. Correcting the high level of impaired assets is key for two basic reasons. First, because the balance-sheet clean-up will improve banks’ profitability and solvency. That is to say, it will free up resources currently devoted to financing unproductive assets and allow them to be used to finance new lending.