DBRS Morningstar released an update on Spanish Banks underlying how strong employment in the country supports additional lending and better asset quality for banks
Last year, Spain led the eurozone in job creation, with employment rates increasing faster and the quality of jobs improving significantly compared to other countries. This robust labor market is poised to favor Spanish banks, enhancing their resilience amid decreasing inflation and the resurgence of substantial real wage increases. Following a notably profitable 2023, the prevailing high-interest rates are expected to further bolster the profits of Spanish banks. The ongoing vigor in the job market is anticipated to boost new loan issuance and mitigate any notable declines in asset quality.
– Spain’s labor market saw remarkable enhancements, marked by significant job growth and improved employment quality.
– The combination of solid employment increases, easing interest rates, and positive adjustments in real wages is likely to accelerate the recovery in banking lending activities.
– The impressive rate of job creation has effectively prevented any significant worsening in the quality of banking assets.
“Spain’s employment rate growth exceeded that of any other euro area nation, with a notable increase in the quality of jobs created,” stated Jason Graffam, Senior Vice President, Global Sovereign Ratings and Financial Institutions Group. “Spanish banks are set to gain from the sturdy labor market, alongside the moderation of inflation and the resurgence of robust real wage growth.”
“While the non-performing loan (NPL) ratio within the Spanish banking sector remains low and stable, the ongoing high-interest rates could elevate customer credit risk, especially if the current trends in employment, inflation, and wages were to reverse,” mentioned Maria Jesus Parra Chiclano, Vice President, European Financial Institutions Group. “At present, the strong momentum in employment growth acts as a primary safeguard against a significant downturn in the quality of bank assets.”
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