Bank of Spain
Financial Stability Report. Spring 2021

Main risks and vulnerabilities of the Spanish economy

The Financial Stability Report (FSR) of the Bank of Spain is a semi-annual reference publication, which analyzes the risks and vulnerabilities of the Spanish economy and financial system, the profitability and solvency of Spanish deposit institutions as well as the Bank of Spain's macroprudential policy and measures.

In its latest Spring 2021 FSR, the Bank of Spain highlighted the following risks and vulnerabilities of the Spanish financial system and economy:


  1. Downside risks to the economic growth outlook remain, closely related to the evolution of the pandemic. Under baseline scenario, GDP would recover pre-crisis level in 2023.
  2. A correction in financial asset valuations cannot be ruled out. Among the possible triggers of an abrupt correction, the role of long-term rates and inflationary pressures stand out.
  3. Possible adverse credit supply shocks. The possible materialization of downside risks and deterioration in credit quality could be amplified through a contraction in credit supply.


  1. Uncertainty about the ability to repay their debts of certain household and corporate segments. The percentage of companies with a negative return on assets has increased by 8pp to 34%. In the case of households, the increase in savings and the reduction of debt hides the existence of segments that have seen a significant increase in their degree of financial fragility.
  2. Significant increase in government debt, particularly in case of potential changes in financial conditions and investor sentiment. The level of Public Debt over GDP in 2020 reached 120%, "rebuilding Spanish public finances will require considerable effort". It will be needed “a fiscal consolidation programme that can be gradually applied when the recovery becomes robust”.
  3. Low profitability and capital generation capacity of banking institutions. Without extraordinary adjustments due to the Covid-19 crisis and others, 2020 ended with a Return on Assets of 0.3% and a Return on Equity of 4.3% (-3.7 pp compared to 2019) on average for the banking system.

Economic policies are presented as the main mitigating factor, and should maintain an expansionary tone until the recovery is solid. It is necessary to have a wide range of instruments that allow a flexible adaptation to the different pace of recovery, with a special focus on viable companies and the most affected population groups. It is also urgent to implement an ambitious program of structural reforms to improve the economy's growth potential.

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