(Adds Bank of Spain comments, details on credit flows)
By Jesús Aguado
MADRID, May 8 (Reuters) - The high number of legal claims in the Spanish banking sector could harm clients and increase the cost of credit, the deputy governor of the Bank of Spain warned on Wednesday.
“Legal claims involve an increase in the workload and the costs associated, in addition to ending up harming clients, given that the need to cover future judicial costs inevitably makes the credit more expensive,” Margarita Delgado said.
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, while households are still cutting their own outstanding credit.
Though new lending to private households increased 8.8 percent in 2018, the overall stock of credit fell 3.9 percent, according to data from the Bank of Spain.
The warning from the deputy governor comes a day after the central bank said Spanish lenders could see a rise in legal claims related to an historic method for pricing mortgages that could have a big impact on their profits.
Spain’s mortgage rate index (IRPH) was used for pricing floating-rate mortgages as an alternative to Euribor and was based on the mean of mortgage yields sold by banks.
The index was scrapped in 2013 after criticism it did not allow customers to benefit from lower rates.
Speaking at a banking conference in Madrid, Delgado also said that given the current low interest environment, mergers were a clear alternative to improve profitability and efficiency in the financial sector.
The number of lenders in Spain has shrank from 55 before 2008 to just 12 as they attempted to improve profitability through mergers and takeovers.
However, Delgado also said that embarking on merger deals could mean entering into long and complex processes that could create more problems than advantages. (Editing by Alison Williams, Paul Day and Andrew Cawthorne )