In contrast to other crises, the late payment of bank loans has not grown during the pandemic thanks to government support measures for companies and implemented homes, but as the disease of prolonged entities financial accumulating latent risks on its balance sheet .
Banks had at the end of last year loans worth 82,000 million euros under special surveillance in Spain due to its high risk of default , which is equivalent to 7.5% of the financing they had granted to companies and households , as revealed this Thursday the Bank of Spain .
Of this amount, some 50,000 million corresponded to companies (9.8% of the portfolio), while the other 32,000 million were granted to families (5.2%). To put it in perspective, these loans under special surveillance represent a higher volume than those that are actually in default (about 48,100 million, 4.4% of the total, 0.4 points less than in 2019).
Not all of them will end up being unpaid, but many of them will, which implies that the delinquency rate will grow “significantly”, with the losses that this entails for banks, which in turn could affect the supply of loans. credit and therefore to economic recovery.
During her recent participation in the First Plan @ forum of EL PERIÓDICO , the deputy governor, Margarita Delgado , already announced that said increase will occur “possibly at the end of this year and more at the beginning of 2022”, although she considered that the historical maximum of 13.61% in 2013 and estimated that the rise will be “manageable.”
Thus, the Spanish and European public support measures have caused non-performing assets to fall by 3.8% last year (compared to -29.1% in 2018 and -19.1% in 2019), something that there had not been happened in previous recessions.
However, there were growth in some segments such as consumer loans (above 20% in the second half of 2020), a slower rate of decline in refinanced and restructured loans (from reductions of 20% to less than 10%). %), and an increase in those who are under special surveillance (20% more in the fourth quarter) .
“We launched a message of prudence because there is a lot of uncertainty about the economic situation and the impact that the measures that have been launched to support business solvency may have ,” warned Ángel Estrada, general director of financial stability , regulation and resolution of the Bank from Spain.
The supervisory body estimates that banks should reserve this year and next provisions similar to those they saved last year to face the losses that the pandemic will cause them, which contrasts with the messages that the entities are launching , which they affirm that in 2020 they already made the main effortand that they estimate that this year provisions will drop significantly.
“They have to be prudent and continue providing in advance so that there is no concentration of provisions at a certain time that prevents them from granting credit, ” Estrada insisted.
Moratoriums and ICO
A key element is the five different types of moratoriums on credit payments (four approved by the Government and one by the sector) promoted during the pandemic. The entities accepted 1.38 million requests, more than 92% of the total, for credits amounting to more than 56,000 million euros (8% of the loans on which they could be requested and 5% of the total to companies and households).
Of this amount, the moratoriums have already expired over 22,000 million , of which 20% are under special surveillance for risk of non-payment (21% in mortgages and 15% in the rest) and slightly less than 10% have been classified asdelinquent (9% and 6%, respectively). “It is necessary to carefully monitor the credit moratoriums in Spain in the coming months,” the supervisory body has warned the entities.
Regarding loans guaranteed by the State through the ICO ( 115,000 million in financing, of which 88,000 million are guaranteed), 8.2% is under special surveillance, while delinquency is below 0.5 % (which is consistent with the initial grace period that these loans have).
However, if all the current loans of companies and freelancers that have requested ICO loans are taken into account, not only those guaranteed, 35.8% are under special surveillance, 4.8% in subjective delinquency (they are not unpaid but the bank considers it very likely that they are) and 5.5% are already in arrears (more than 90 days late in payment).
The background sea is that, despite the fact that the ongoing process of vaccination against the coronavirus has improved the prospects for resolving the health and economic crisis, “notable risks” persist .
This has been warned by the Bank of Spain in its biannual financial stability report , in which it highlights that recovery could be hampered if there is an expansion of new, more resistant variants of the virus or a delay in vaccination; “insufficient support” for economic policies or their “premature withdrawal” ; or an increase in interest ratesin the United States due to the increase in inflation in the country caused by the rebound of its economy that caused a tightening of financing conditions in other regions of the world where the recovery is slower, such as the European Union.
The organism’s economists highlight three major risks for the recovery and three major vulnerabilities that make the Spanish economy more exposed if these risks are confirmed. The first of these is precisely the evolution of the pandemic.
If vaccination goes according to plan and the new strains do not worsen the pandemic, its containment measures should be withdrawn “until its practically complete disappearance at the end of 2021 “. But, they warn, “a more negative evolution” of the disease cannot be ruled out , which would cause a greater disappearance of companies, greater unemployment growth, and the consequent greater increase in non-performing loans.
The second main risk is the overvaluation (read: bubbles) that is occurring in ” certain geographies and asset classes” , where there are “price levels that are higher than those that would be derived from the historical empirical relationship with their determinants. fundamental “.
A “correction” in these prices cannot be ruled out, the report warns, if inflation in the United States continues to rise and the Federal Reserve has to raise rates to contain it, which would increase the difficulties of companies to pay their debt.
The third fundamental risk is that the banks turn off the credit tap . If the economy goes worse than expected and the payment capacity of companies and families to pay their loans suffers as a result, warns the Bank of Spain, said deterioration of the economy “could be amplified through a contraction in the supply of credit “.
The deputy governor also referred to this in the Primera Plan @ forum: “I do not see fundamental reasons on the horizon that prevent banks from continuing to lend if the economy evolves as expected and there are no abrupt withdrawals of public support of different nature and dimension that are being given. In that we must err on the side of caution, because the relapse could be even worse. “
Regarding the vulnerabilities that could increase the impact of these risks if they materialize, the first one that the economists of the public body cite is the “weakness” of the financial situation of certain segments of families and companies .
“In the case of households, the increase in the savings rate and the reduction in the volume of credit at the aggregate level, hides the existence of segments that have seen their degree of financial fragility increase significantly,” they warned.
A second vulnerability is the increase in indebtedness and the high public deficit , which leave Spain more vulnerable to possible changes in financing conditions and in investor sentiment. At this point, the Bank of Spain once again insists that public aid should not be withdrawn prematurely, but should focus on viable companies in difficulty and on the most affected population groups.
But at the same time, he reiterates that “the execution of an ambitious structural reform program that improves the potential growth of the economy and the design of a fiscal consolidation plan for its gradual execution when the recovery is solid is also urgent.”
The third vulnerability is the low profitability and capital generation capacity of banks . To mitigate it, he recalled, supervisors have urged entities to follow “extreme prudence” in the payment of dividends that allows them to retain capital to reinforce their solvency, as well as anticipate through the reserve of provisions the impact of future losses that they will suffer from increased delinquency and loss of asset value.