Bank of Spain won't activate capital buffers due to coronavirus

MADRID (Reuters) - The Bank of Spain said on Tuesday it would not activate counter-cyclical buffers for domestic lenders for the foreseeable future due to the economic fallout from the coronavirus pandemic, and it maintained the buffer at 0% for the coming quarter.

The buffers seek to mitigate or prevent cyclical risks caused by excessive growth in aggregate credit by requiring lenders to build insurance reserves during times of strong growth which would then be available in the case of a downturn.

Last October, the central bank said it could start activating the counter-cyclical buffers from the second quarter of 2021 onwards, but Tuesday's statement marked a change of tack.

"The recent outbreak of the global coronavirus pandemic and necessary containment measures applied in our country have given way to a situation that recommends not activating this instrument for a long period of time, at least until the main economic and financial effects of the coronavirus crisis have been dissipated," the Bank of Spain said.

With economic activity in Spain suffering a severe disruption, credit is not expected to grow in the short-term, the bank said.

After Italy, Spain now has the world's second-highest death toll worldwide from coronavirus, at 8,189. It has reported 94,417 confirmed cases of the virus and the shutdown imposed by the government to halt its spread has paralysed industries from tourism to car manufacturing.

On Tuesday the government was preparing new measures to help households and exempt small firms from social security payments.

(Reporting By Jesús Aguado; editing by Andrei Khalip and Gareth Jones)