Spanish central bank has asked lenders to maintain capital and limit mortgage loan costs to deal with mounting economic uncertainty, Reuters reported. 

Risks to financial stability have increased since April 2022, the banking watchdog has warned. 

Banco de Espaa head of financial stability Angel Estrada emphasised that the temporary mortgage relief measures that the state and bank are preparing should only be targeted at households that are at risk.

“The measures must identify the target group and the aid must not increase the cost of future (mortgage) clients,” Estrada was quoted by the news agency as saying. 

While increased interest rates are anticipated to increase lenders’ income in the short term, banking regulators have cautioned against dangers related to the situation in Ukraine as European economies brace for recession. 

“All this recommends a prudent provisioning and capital planning policy, allowing a short-term increase in profits to be used to increase the resilience of the sector,” the central bank said in its financial stability report. 

The central bank has projected that in the coming quarters, high inflation will impact the economic outlook and it recently cut its forecast for 2023 to 1.4% from 2.8%.

The news comes as Spain’s government is preparing a temporary windfall tax on banks that, according to Prime Minister Pedro Sanchez, might eventually be made permanent.

“In principle, it is temporary, but we will have to see over the coming months and years,” Sanchez was quoted by Bloomberg as saying in an interview with the La Sexta TV channel. 

Earlier, the government’s ruling coalition submitted a proposal to amend the banking tax bill to tax foreign bank units operating in Spain.