the 12 - month euribor, 18 the main interest rate to which the stock of mortgages in spain is linked ) will lead to a rise of almost 2 pp in the proportion of households with a high net interest burden. 19 this effect would be most pronounced among indebted households between the 20th and 40th percentiles of the income distribution. 20 this exercise was conducted drawing on information from the 2017 spanish survey of household finances ( eff by its spanish abbreviation ). the latest financial stability report includes the results of the exercise for various interest rate hike scenarios. it was found that the proportion of households with a high net interest burden would rise by 1. 2 pp, 2. 3 pp and 3. 9 pp, respectively, if interest rates were raised by 100 bp, 200 bp and 300 bp. the 12 - month euribor has risen from - 0. 501 % at 31 december 2021 to 1. 091 % at 20 june 2022. the net interest burden is considered to be high when the ratio of ( debt service expenses - interest income from deposits ) to household income is over 40 %. these percentages should be considered as the lower bound of the total impact of the interest rate rise, as this would also reduce agents ’ income, through its negative impact on economic activity, and would curb the accumulation of wealth on account of the higher net interest burden. as far as general government is concerned, the steep rise in the public debt - to - gdp ratio seen since 2007 also means that public finances are more sensitive to interest rate movements. however, the fall in interest rates of recent years has led to a continuous decline in the interest burden as a percentage of gdp, while at the same time, longer average debt maturities ( currently standing at more than eight years ) limit the short - term impact of higher issuance costs. specifically, incorporating the current market expectations for rising interest rates into the banco de espana ’ s latest macroeconomic projections, the public debt burden would increase from 2. 2 % of gdp at end - 2021 to 2. 5 % in 2024. under this updated scenario, an additional 100 bp increase in short and long - term interest rates, with all other variables remaining constant, will further drive up interest payments by around 0. 4 pp of gdp by 2024. as regards the impact of rising energy prices, variations similar to those observed between the banco de espana ’ s december 2021 and march 2022 projections21 would have moderate average effects on

24. 06. 2022 the spanish banking industry and the economic challenges ahead * meeting with the spanish financial press association / universidad internacional menendez pelayo pablo hernandez de cos governor * lenglish translation from the original in spanish. good morning : i wish to begin by thanking the spanish financial press association ( apie ) and the universidad internacional menendez pelayo for once again inviting me to take part in this meeting, providing me with the opportunity, on this occasion, to address the latest developments in the spanish banking industry and the challenges ahead. the russian invasion of ukraine is a new shock for the world economy, just two years after the shock triggered by the pandemic. the political and economic consequences of the war are difficult to predict, but they are already changing the macro - financial environment, characterised by a sharp increase in uncertainty and a persistent surge in inflation. all this, when the spanish economy was experiencing a recovery – albeit incomplete and uneven across economic sectors – from the economic effects of the health crisis. the deterioration in the macro - financial environment has come at a time when the spanish banking industry ’ s resilience remains generally high and it had returned to prepandemic profitability levels. but the war in ukraine and, more generally, the economic costs of a high inflationary setting, pose fresh risks for financial stability. spanish banks have very little direct financial exposure to russia and ukraine, but the indirect effects of the war may be significant. it is having a negative impact on world trade and on confidence among households and firms, which may lead them to postpone consumption and investment decisions. in the financial markets, the increased uncertainty is driving up both risk premia and volatility. that said, the main short and medium - term impact of the war stems from the fact that russia and ukraine are major commodity producers, particularly of energy and metal commodities in the case of russia and agricultural commodities in the case of ukraine. given that europe is a net importer of energy and depends, therefore, on russian gas and oil, the climb in energy prices not only generates inflationary tensions, but by raising the external energy bill it also reduces household income. moreover, monetary policy normalisation, which is needed to moderate inflationary pressures, has already led to a tightening of financial conditions in the economy. this scenario could reduce households ’ and firms ’ ability to pay, particularly among those experiencing a slower or tardier recovery from the pandemic. the impact of these