Financial Stability Report, No. 1 - 2022

With the outbreak of the war in Ukraine, the risks to financial stability have increased, although they remain low compared with past episodes of tension. The slowdown in economic activity and the rise in interest rates could expose the country to risks, in part due to the strong growth in government debt following the pandemic crisis.

In 2021, households’ disposable income grew and confidence improved, but the war and rising inflation are having a negative effect on the outlook. The debt-to-income ratio for households is stable and much lower than the euro-area average. The measures taken by the Government are helping to limit the impact of rising energy prices on the most financially vulnerable households. The risks to financial stability from the household sector continue to be low.

Firms’ financial vulnerability is increasing, despite the cyclical improvement in 2021 due to the higher share of spending on energy products, the difficulties in the procurement of commodities and intermediate goods, and, for some firms, the direct consequences of the sanctions imposed on Russia and Belarus.

The asset quality of the banks is still good on average, their profitability has improved and capitalization remains stable; however, the war represents a significant source of uncertainty and could have significant consequences through multiple direct and indirect channels, both financial and economic.

Insurance companies’ exposure to the effects of the conflict is moderate; the risks to financial stability from the investment funds sector continue to be low.