The Bank of Spain head office in Madrid. / R.C.

Bank of Spain warns about impact of cost of living crisis on the vulnerable

The autumn Financial Stability report also advises banks to be ready in time for the new tax on their extraordinary profits which is due to come into force on 1 January


The Bank of Spain calculates that the future of families with the lowest incomes is under threat after the recent rise in interest rates which will make their loan repayments more expensive. In its autumn Financial Stability Report it says that for one-third of these households, financial costs will increase to levels considered to be 'at risk'.

These families will have to spend more money on mortgage and loan replayments, to such an extent that no bank would normally agree to lend to them if they were to apply now. These payments will account to more than 40% of their income in many cases, leaving them in too fragile a financial situation. Even in the case of middle-income households, nearly 14% will find their financial burden difficult to cope with.

The report comes as financial institutions and the government are negotiating an extension to the code of good practice to protect households which will suffer most from a sharp increase in their mortgage repayments, although nothing has been finalised yet even after several weeks of talks.

The Financial Stability report has once again asked banks to make the appropriate provisions to ensure they have the necessary funds to cope with the risks facing the economy and, above all, to act “adequately and in time” in view of the possible recession in forthcoming quarters.

New tax on profits

The Bank of Spain has also analysed the impact the new tax on banks’ extraordinary profits will have, which the government is planning to bring into effect from 1 January. It says banks must improve their solvency ratios, as these are essential if they are to continue funding projects. The Treasury calculates that the new tax will bring in 1.5 billion euros over two years. Spanish banks make around 24 billion euros in profits a year.