Spanish companies are better prepared to face the disruption from the coronavirus pandemic than when the global financial crisis hit, although some vulnerabilities persist, the Bank of Spain governor said.

Spain’s central bank said in its latest financial stability report that risks to global financial stability had increased but measures taken at national and European should help mitigate them.

«Spanish households and non-financial companies are facing this situation with a significantly more favourable financial position than before the global financial crisis,» Bank of Spain governor Pablo Hernandez de Cos said in a separate statement commenting on the central bank’s report.

De Cos, who is also a member of the European Central Bank governing council, said the better relative positive position of Spanish companies was mainly a result of the substantial reduction of their debt in recent years, which is now below the European average.

However, the Bank of Spain said the contraction of the economy in the second quarter would be significantly higher than in the previous quarter, when it showed a quarterly record decrease of 5.2%.

The Bank of Spain also said that the COVID-19 pandemic had lead to an increase of the cost of risk – or the cost of insuring a loan – in banks’ exposures to companies. The challenges for lenders were significant due to the magnitude of the shock in the short-term.

Against this backdrop, the Bank of Spain said that despite the significant reduction in bad loans since 2014, the non-performing loans ratio was still above pre-crisis levels and would experience an increase thus further eroding the bank’s already battered profitability ratios.

Original Story: Reuters| Jesus Aguado, Emma Pinedo
Photo: Photo by Pablo Rodríguez from FreeImages
Edition: Prime Yield