period a year earlier and stood at 6. 2 %. this figure is lower than current estimates of the cost of capital, which, subject to their characteristic uncertainty, are somewhat above 7 %. 6 / 29 in any event it should be borne in mind that profitability levels vary considerably across banks, both in spain and in other european countries. this shows that profitability issues affect the sector unevenly because of the heterogeneity of banks ’ business models across countries and within each jurisdiction, and also because of the multiplicity of explanatory factors. factors explaining low bank profitability to better understand the factors behind the low profitability of spanish banks compared with pre - crisis levels, i intend to focus on their business in spain. this is because profitability figures as per the consolidated financial statements are influenced by the growing share of international exposure in recent years, which complicates the interpretation of earnings as they are affected by significant changes in composition. furthermore, only a small number of banks have significant international exposure, so the performance figures based on consolidated financial statements may not be very representative of the majority of the banking sector. 7 / 29 the profitability data based on individual financial statements of business in spain are also highly cyclical, even more so than those from the consolidated statements. this reflects the greater severity of the crisis in spain than in other economies in which spanish banks had exposures and highlights the benefits of diversification. also apparent is a marked recovery in recent years, despite which in 2018 both roe and roa were still lower than before the crisis. the breakdown of the return on assets shows that the main determinant of the current low profitability of business in spain compared with the pre - crisis period is a weakening of net interest income expressed as a proportion of assets, or net interest margin. this fall, concentrated between 2009 and 2013, was from 1. 4 % to 0. 9 %. the indicator then steadied at around 1 % of total assets. the fall was attributable to several factors. 8 / 29 one factor is the increase in the relative share of non - performing assets, i. e. those that do not earn interest, such as npls or foreclosed assets. specifically, between 2007 and 2013 the npl ratio of business in spain rose by nearly 13 pp. it then fell gradually, against a background of decreasing loan volume, and at mid - 2019 stood at 5. 3 %, more than 8

very low, or will even be negative for a further period pose challenges of at least two types for credit institutions. first, this macroeconomic context will represent a challenge for deposit institutions to recoup levels of profitability more in line with the cost of capital. indeed, in the last few months market expectations for growth of bank profits have declined. second, this context of “ low interest rates for longer ” may provide greater incentives for economic agents to take risks, which could heighten the risk to financial stability. today i would like to devote my address to the analysis of these two matters, focusing on their impact on the spanish banking sector. i will also present the results of the latest stress test exercise conducted by the banco de espana. 1. low bank profitability profitability is one of the main variables characterising the financial position of banks and the first line of defence against adverse shocks. indeed, the volume of a bank ’ s profits determines the return its owners can earn on the capital invested. this, duly adjusted for the risks assumed, will affect the bank ’ s valuation. moreover, profit levels determine the margin these agents have to address shocks. indeed, low profitability reduces the possibility of generating capital internally through retained earnings. note that banks ’ capital acts as a buffer that allows potential losses to be absorbed in adverse scenarios, so that they can continue to offer financial services to households and 3 / 29 firms, thus contributing to smoothing – rather than amplifying – negative shocks to the economy. 1 since the international financial crisis the profitability of the european banking sector has remained very low and below the cost of capital. and this, despite a drop in the cost of capital, mainly due to the lower risk - free interest rate of the economy, but also to banks ’ improved risk profile, manifested, among other variables, in higher solvency ratios. by contrast, us banks have managed to achieve very high levels of profitability ( in 2018, 11 % in the usa compared with 6 % in europe ) more in line with the cost of capital ( between 8 % and 10 % in 2018 ). our analyses indicate that this is one of the reasons why the market value to book value ratio of us banks significantly exceeds that of european banks, which remains at values below one. also, a high level of capital entails a stronger link between the personal wealth of the owners and the economic performance of the banks, thus contributing to mitigate the risk profile that the latter are prepared to