June 17, 2019 / 10:41 AM / a month ago

UPDATE 1-Spanish banks must not relax lending standards - Bank of Spain

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MADRID, June 17 (Reuters) - Spanish banks should not relax their lending standards, Bank of Spain Governor Pablo Hernandez de Cos said on Monday, warning over a sharp rise in consumer lending over the past few years.

An aggressive push by banks into consumer lending has raised concerns over a possible return to the kind of lucrative but risky practices that tipped Spain’s financial system and economy into crisis a decade ago.

“It is essential that banks do not relax lending standards so as to minimise new entries of non-performing loans and maintain active management of their doubtful and allotted portfolios,” De Cos told a conference in Santander.

Spanish banks are still suffering from the effect of reducing toxic legacy assets left on their balance sheets after the burst of the real estate bubble in 2007 forced millions in to unemployment and leaving many unable to pay their debts.

Consumer lending has risen by over 40% between the end of 2015 and the end of 2018, while mortgage lending has fallen 15% in the same period.

De Cos also noted that the central bank does not plan to activate a counter-cyclical buffer requirement from domestic banks when it meets on Wednesday.

Such buffers seek to mitigate or prevent cyclical risks caused by excessive growth in aggregate credit by requiring lenders to build insurance reserves during times of strong growth which would be available in the case of a downturn. (Reporting By Jesús Aguado; editing by Paul Day and Ingrid Melander)

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