in 2021, although at a slower pace than in the previous half - year. at december 2021, 20. 2 % of ico - backed loans were classified as stage 2 exposures ( up 3. 9 pp on june 2021 ), and 3. 5 % as npls ( up 1. 4 pp on june 2021 ). it must be noted, however, that 30 % of these loans continue to benefit from grace periods, which will come to an end in summer 2022. 6 in the present setting, these credit exposures with some sign of impairment may, in turn, be more vulnerable to the materialisation of risk. accordingly, careful monitoring is needed, together with early and correct recognition of potential losses. third, profitability improved substantially7 in 2021. specifically, return on assets ( roa ) stood at 0. 67 % ( compared with - 0. 21 % in 2020 and with 0. 51 % in 2019 ). in the sectors hardest hit by the covid - 19 crisis, the proportion of stage 2 loans is higher ( 35. 5 % and 22. 7 % in hospitality and transport, respectively ) ; this is also true of npls ( 6. 5 % and 4. 5 % in hospitality and transport, respectively ). consolidated net profit totalled €26 billion in 2021, an increase of €34 billion on the losses recorded in 2020. extraordinary items, which were negative in 2020 and positive in 2021, 8 had the most impact on profitability. excluding extraordinaries, roa stood at 0. 57 %, an increase of 37 basis points ( bp ) on 2020 and down just slightly compared with 2019 ( 0. 63 % ). the main driver of the improvement in ordinary profit was the reduction in impairment losses, which fell by 43. 5 % compared with 2020 to €14. 3 billion, a somewhat lower level than in the two years prior to the pandemic. the recovery in profit in 2021 was widespread across the main countries where spanish banks pursue significant international business. profitability also improved at the european level, following the notable decline in the previous year, returning to close to prepandemic levels. as in spain, the main driver of this improvement was the significant fall in impairment provisioning. the breakdown shows that gross income rose by close to 3 % in 2021, driven by the timid recovery in net interest income9 and, above all, by a 10. 4 % increase in net fees and commissions,

only partially passed through to the balance sheet. this is an important factor mitigating the impact of the crisis. also, considering the sovereign bond holdings held at fair value, those banks whose portfolios have shorter terms to maturity are less affected than those with longer terms to maturity. in the case of spanish banks, 70 % of sovereign bonds held at fair value have a remaining term over one year, while just 7 % have terms to maturity over ten years. these positive effects predominate over the decline in the stock of performing loans that generate interest income, prompted by higher interest rates and worsening economic activity, which lessen total credit growth and quality. conclusions to recapitulate, the banking industry is facing the new shocks stemming from the invasion of ukraine, having posted a moderate lending performance in spain in 2021, recovered prepandemic profitability and maintained its solvency levels. the recovery in economic activity in 2021 helped underpin non - financial agents ’ financial position, although there are still industries and segments that are more vulnerable now than they were before the pandemic. yet despite this favourable performance latent credit risks persist, associated above all with the higher proportion of stage 2 loans, concentrated in the economic sectors most severely affected by the health crisis. financial intermediaries in spain have very low direct credit exposure to russia. however, the deterioration in the macroeconomic outlook and further increases in inflation will intensify the likelihood of the materialisation, and impact on the banking sector, of the latent risks. in this setting, the simulation exercises performed show that, around the projection scenarios, rising energy prices and tighter financing conditions will have an uneven impact on the financial situation of firms and households. this impact will be contained in aggregate terms, but will be more severe for groups that are more vulnerable on account of their indebtedness or energy dependence. moreover, the banking sector stress tests point to a certain degree of capital charge under more extreme scenarios and to aggregate resilience that remains adequate, albeit uneven across banks. lastly, the short and medium - term challenges must not allow us to overlook the need to address the structural challenges that the banking sector was already facing before the onset of the pandemic and russia ’ s invasion of ukraine. in particular, the need for capacity adjustment, as well as the growing competition from technology firms and the potential negative effects associated with climate risks.