Ángel Monzón interview with El Economista: It would be worth discussing bank capital buffers, to see if they can be simplified

But there are other sources of income to look at. In recent years, fees and commissions have been increasing. And banks have been reducing costs and improving efficiency. Perhaps the question here is: if they have to invest more in technology in the future, how can they control costs? Another point has to do with provisions, which have been very low until now. If the quality of assets does not deteriorate, and in principle they remain low, this will allow banks to maintain their profits too.

Late payments are low, but credits under special surveillance (Stage 2) are high. Which red flags do you monitor most closely?

Loans at Stage 2 increased after COVID and have remained at high levels. Here we look, for example, at whether or not corporate bankruptcies are increasing. Unemployment remains at a fairly low level in Europe for now, but it is another important factor that could affect credit quality.

We also look at whether some sectors behave differently from others. Where we see the most risk is in the area of small and medium-sized enterprises and in the commercial real estate sector, where Stage 2 is higher.

One-third of banks anticipate a deterioration in SME portfolios. What impact could this have on the economy?

This is the sector that banks see as the most vulnerable, partly because it is affected by the current geopolitical risk situation and uncertainty about economic growth. On the other hand, it is important that banks continue to support this sector, because it is more difficult (for SMEs) to obtain funding in the financial markets. In fact, it seems to be one of the sectors where banks are going to increase their exposure, judging by responses in the bi-annual questionnaire that we circulate to a large number of banks.

The Bank of Spain is evaluating restrictions on mortgage lending. Do you think that such measures are needed?

In many countries, there are what we call borrower-based measures, which set certain standards for granting credit and also have a macroprudential objective. Aside from the need for banks to assess borrowers’ situation when granting loans, with these measures they also have to take into account the impact that they may have on the segment of the population that has the most difficulty in obtaining loans, or on young people who are eligible for a loan, but the loan-to-value, for example, does not allow it. It is important to look at the specific type of measure and how it can affect credit.

Capital ratios are at their highest levels. Is there scope for increasing compensation to shareholders?

Banks have historically distributed around 55 % of their profits. Can this be increased? Perhaps, but I don't think it will. Rather, I see this compensation as sustainable. It is important that banks have sufficient capital and take the above-mentioned risks into account when distributing profits.

Spanish banks continue to lag behind in terms of solvency in Europe. Is this a weakness?

It is true that the capital ratio is lower than in other countries, but we need to look at other areas too. When we conducted the stress test, we saw that banks with higher profits suffer less in adverse situations, because the profits serve as the first buffer against losses. Diversification also helps. Being efficient and managing costs very well are very positive elements too. Whether they are mainly using a standard model or an IRB model resulting in higher weighted risks should be taken into account, as well as the specific characteristics of their portfolios.

Do you believe that some governments are hindering bank mergers?

At the EBA, we believe that it is good that these mergers occur. They diversify risks – not only national ones, but also at a transnational level.

How can ‘stablecoins’ become an ally for banks?

Risks to banks from stablecoins include an outflow of deposits, which must be carefully managed. Until now, the institutions safeguard digital wallets and there have been some cases of use also in payment systems. We will see if their activity increases in the future.

The European banking authorities are working on simplifying regulation; what specific progress is on the agenda for 2026? Should capital buffers be redesigned and unified?

In our report on the efficiency of the regulatory and supervisory framework, we make proposals for simplifying the regulatory framework. Some concern prioritising some of the mandates we have and reducing the cost of reporting. The buffers topic is complex because there are many authorities involved in the discussion, such as the national macroprudential authorities. It isn't that easy. However, it is an area worth discussing, to see if it can be simplified in some way. We need to look at all buffers, not just capital buffers. Also regarding resolution, and the interactions between all the buffers.

The Bank of Spain is calling for two buffers, one microprudential and the other macroprudential. Do you agree with this request?

The Bank of Spain is making this proposal, but other countries may have different points of view. We will see if there is a consensual agreement to move in a particular direction.

The interview was conducted by Matteo Allievi qnd Eva Contreras

El Economista (Spain)