, 7 / 17 the npl ratio has fallen by more than eight percentage points to stand at 5. 8 % of total lending. foreclosed assets, meanwhile, are only 50 % of the level recorded in 2014, so that their weight has been reduced to 3. 6 % of assets, vis - a - vis the resident private sector. active management of these assets by banks, under supervisory pressure, has played a very important role in this process. in any event, there is still significant room for improvement ; before the international financial crisis, the npl ratio was below 1 % and foreclosed assets were practically non - existent. the restructuring of credit institutions is also reflected in the reduction in the weight of the real estate sector ( broadly defined ), 2 which stood at 52 % of gdp in 2018, as compared with 99 % in 2008. loans for house purchase, plus loans to businesses in the construction industry and related areas. 8 / 17 at the same time, there is also evidence that these developments have been accompanied by some degree of borrower selection for the supply of credit, so that access to funding has improved more markedly in the case of firms in a more favourable economic and financial situation. this has been reflected in an increase in the positive association between the receipt of loans by firms and their productivity. this period has also seen a significant improvement in credit institutions ’ solvency ratios, with their tier 1 capital ratio rising from 7. 5 % in 2007 to 13. 5 % by the end of 2018. 9 / 17 current situation and future challenges of the spanish banking sector despite all these improvements, the spanish banking sector still faces significant challenges. the challenge to banks represented by the task of reducing troubled assets is now greater, because the troubled assets already sold were naturally the most attractive ones. it is thus crucial for banks not to relax their credit standards if they wish to minimise their new bad debts and maintain their active management of npl and foreclosed asset portfolios. while net interest income has held steady, the decrease in unproductive assets and writeoffs has helped to improve profitability. specifically, at the end of 2018 the return on equity stood at 7. 2 %, the highest since the global financial crisis and also above the european average. despite this, the return on equity is still below the cost of capital, making low profitability one of the main risks facing spanish and european banks. improved profitability is, furthermore, one of the requirements for banks

23. 05. 2018 “ strengthening the economic governance of the euro : short - term priorities and the long - term view ” high level seminar. banco de espana luis m. linde governor ladies and gentlemen, let me first extend a warm welcome to you all to the banco de espana. thank you for joining us today in this seminar that addresses the pressing and very important topic of the economic governance of the euro : short - term priorities and the long - term view. i would like to thank the panelists who have been so kind to accept our invitation ; we are very pleased to have among us a long list of distinguished participants that would certainly throw much welcomed light on the discussion. the timing of this conference is particularly relevant. after years of low growth, europe is now experiencing a robust recovery which opens up a window of opportunity to make progress in the governance reform agenda before the next economic downturn unfolds. supported by expansionary monetary policy, real gdp in the euro area has expanded for 19 quarters in a row. stronger price dynamics are yet to materialize, but we are confident that if we are prudent, patient and persistent, our monetary policy measures will be effective in achieving the medium - term goals. price stability is a necessary but not a sufficient condition for achieving sustained and balanced growth. in fact, one important lesson we can draw from the first twenty years of the emu is the need to improve the area ’ s resilience to large macroeconomic shocks and to increase its stabilization capacity. in this context, we currently find ourselves at a crossroads in what refers to the pace of the governance reform agenda. despite evident progress since the peak of the crisis, the building of a more cohesive monetary union, as proposed in the van rompuy ’ s report of june 2012 ( the so - called four presidents ’ report ) and in the juncker ’ s report of june 2015 ( the so - called five presidents ’ report ), is, we all know that, a very difficult task. as a matter of fact, there has been no significant step forward since the establishment of the single resolution fund in june 2014. recently, several initiatives have attempted to re - launch the debate on the future of euro area ’ s governance, including, in december 2017, the european commission ’ s report on “ further steps towards completing europe's economic and monetary union : a roadmap ”, or, in january of the present year, the center for economic policy research