The delinquency still does not appear, but the “Latent risks” they keep growing. Unlike in other crises, the non-payment of bank loans are not growing during the pandemic thanks to public support measures for businesses and households implemented, but as the disease continues, financial institutions are accumulating potential problems in its balance sheet. Banks had at the close of June 93 billion euros in special surveillance in Spain for its high risk of default, which is equivalent to 8,6% of the funding they had granted to companies and households and supposes a growth of the 13% and 11 billion since December, as revealed this Thursday on Bank of Spain.
Of that amount, some 58 billion corresponded to companies (9.6% of the portfolio and 16% more than at the end of last year), while the others 35 billion were granted to families (6.6% of the total and 9.3% more). To put it in perspective, these loans in special surveillance represent a higher volume than they are already in must (53,543 million in August, 4.43% of the total, compared to 4.79% at the end of 2019).
Not all will end up being unpaid, but many will, which means the rate defaults will start to grow, predictably from the next springwhen the two years grace period included in loans to companies with public endorsement of the ICO. The Bank of Spain, in any case, expects it to be a manageable increase. “Public measures meant that there was less delinquency, but above all than their own rise would extend in time for the banks to have more time to generate resources for cover losses“Said his director of financial stability, Angel Estrada. In this way, they also sought to have more resources to provide credit and thus finance the recovery.
The supervisory body considered them half a year ago Banks had to continue to make provisions to cover losses this year similar to those of 2020but the improvement of the economic scenario has led him to conclude that, in general terms, the important thing now is that do not empty the extra piggy bank which they filled last year with the pandemic. However, there are differences between banks: “There is still a very large percentage of institutions, around 40%which should to continue to provide provisions at a high rate for the next three years ”.
Risks and vulnerabilities
The stability of the Spanish financial sector has thus improved in the last half year thanks to the recovery of the economy favored by vaccination and the measures deployed by the authorities, but the “Vulnerabilities and risks remain high”. This was stated by the Bank of Spain in its biannual financial stability report, which highlights that the activity of the sectors most affected by coronavirus it remains “clearly below” the level they had in 2019. “We need to continue to keep a close eye on the financial system,” the supervisory body sums up.
Among the risks mentioned, he cites the possibility that the economy grow less than expected by a resurgence of the pandemic or by an extension of rising inflation caused by the sharp rise in energy prices and the emergence of bottlenecks in global production chains. This high inflation, he adds, could lead to one of “premature” withdrawal of stimuli of central banks and faster than expected by the market, which in turn would cause a fall in the price of financial assets and a tightening of conditions for obtaining financing.
Spain is particularly vulnerable to these risks due to three factors. The first is the financial weakness of certain business sectors (the most affected by the pandemic, such as hospitality, transportation and car manufacturing) and homes (those related to the aforementioned business sectors and those with lower incomes). The second, high public sector debt (“In the absence of a proper consolidation plan, the level of indebtedness could remain at high levels for an extended period”). And the third, the “Weakness” in the profitability of banks (especially due to the aforementioned “latent deteriorations” in credit portfolios that could materialize in the coming quarters and reduce the ability of banks to lend with less solvency).
As this newspaper advancedthe Bank of Spain also continues to consider, contrary to the European Central Bank (ECB), that in Spain «at an added level, the housing shows no signs of overvaluation and, although new mortgage lending is growing strongly in 2021, part of very low levels, it is not translating into a material increase in stock and there is no relaxation in the conditions of granting these loans ”. However, the supervisor warns that “if the expansionary real estate trend were to prolong and intensify, it would nevertheless be necessary re-evaluate this risk diagnosis»As well as that« his is necessary continuous monitoring to detect early risk signs». “It simply came to our notice then we have to keep an eye on itEstrada summed up.