Bank of Spain warns of indirect impact on economy and banks from Ukrainian conflict

People walk past the Bank of Spain in central Madrid October 23, 2014. REUTERS/Sergio Perez

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MADRID, April 27 (Reuters) – Russia’s invasion of Ukraine and the subsequent rise in inflation could have a significant indirect impact on Spain’s economy and banks, even if their direct exposure is very limited, a said the Bank of Spain on Wednesday.

Spanish lenders generally rank among the least exposed to Russian credit, with the Spanish central bank estimating their credit risk at just over 700 million euros ($742 ​​million).

However, the central bank said a potential combination of higher prices and higher short-term interest rates could erode real household and business income and hit sectors already heavily impacted by the COVID-19 pandemic. 19, such as tourism and transport.

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“The indirect effects of the new shock, resulting from the impact on uncertainty, inflation and economic activity, can be significant,” he said in his semi-annual financial stability report.

The persistence of recent inflationary spikes, he added, increases the risks of second-round effects on corporate wages and margins. Runaway prices could also increase the cost of credit and bank provisions, he said.

Earlier this month, the Bank of Spain lowered its economic growth forecasts for 2022 and 2023, while raising its inflation outlook for this year to 7.5%. Read more

Despite soaring inflation in countries like Brazil and Turkey, Spanish banks’ exposure to emerging markets is positive for financial margins, Angel Estrada, head of financial stability at the central bank, told reporters.

On Tuesday, shares of Santander (SAN.MC) fell 6.8% on higher costs in Brazil stemming from rising inflation despite generally strong quarterly results. Read more

Some analysts pointed to the risks of BBVA’s (BBVA.MC) bet on Turkey due to high prices. Read more

The central bank also said lifting grace periods on state-guaranteed loans, where companies are only required to pay interest and not principal, could increase writedowns in banks’ credit portfolios over the course of the year. of the next quarters. Read more

According to her, the conflict in Ukraine could also increase public spending in the short term, while Spain’s high levels of deficit and public debt already make the economy vulnerable to deteriorating financing conditions. Read more

($1 = 0.9439 euros)

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Reporting by Jesús Aguado Additional reporting by Emma Pinedo Editing by Andrei Khalip and Mark Potter

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