The Bank of Spain has published this Wednesday its Financial Stability Report, which is updated in autumn and spring. The extensive document analyzes the situation of banking, public finances, the non-bank financial sector or the real estate sector, among other issues that affect the country’s financial risks. In the latest update, which analyzes until the end of 2021 but advances aspects caused by the war in Ukraine, the Spanish banking supervisor warns of an increase in loans that are one step away from being considered non-performing. The figure is almost 100,000 million euros or 8% of all the debts that households and companies have.
This is a status known as “special surveillance”, which refers to those loans in which there has not yet been a default but in which an increased risk of being considered delinquent has been appreciated. Despite this favorable evolution [del sector bancario español], latent credit risks persist, associated in particular with the higher proportion of loans under special supervision, concentrated in the sectors of activity most affected by the COVID-19 pandemic”, the report states. Before the pandemic, the weight of this “special surveillance” on all loans was 2.2 points lower than the current one, according to data from the supervisor.
The loans that received this label by banks has increased by 14% during the last quarter of last year. A figure that, although lower than previous quarters, shows the significant progress. The supervisor adds to this trend the refinancing or renegotiation operations between clients, basically companies, and banks. The Bank of Spain understands that these renegotiations are usually closely linked to possible cases of delinquency and indicates that they have increased by 14.3% in 2021 compared to the drop of more than 9% registered in 2020.
Delinquency – credits with three defaults, also known as doubtful – has continued to decrease over the past year and continues at low levels, according to the supervisor, who, however, focuses on “special surveillance” as a way to anticipate the possible effects of the crisis caused by the coronavirus and the effects that the impact of the war in Ukraine and high inflation may have. Before the pandemic, there were about 70,000 million who were under special surveillance.
As far as companies are concerned, the Bank of Spain underlines that the sectors most affected by the pandemic are those where doubtful loans have increased, reaching 5.9%, compared to 5% at the beginning of the crisis, while that in the rest of the sectors there have been decreases. The main difference comes when those defaulters are added that “special surveillance”. Among the sectors most affected by the health crisis, such as tourism or hospitality, almost a quarter are in one or another stage, compared to 17.7% of “moderately affected” activities or 15% of the least affected sectors. affected by the crisis.
The Bank of Spain analyzes the evolution of two measures that were used during the pandemic to lighten the financial burden of families and companies: moratoriums and ICO loans. In the first case, to delay some household payments, it reached a small part of the mortgage portfolio, and the supervisor figures that loans are now doubtful at 11%, compared to 7.6% a year earlier. In addition, the loans that, after having taken advantage of the moratoriums, have increased to almost 20%, are under “special surveillance”. The Bank of Spain does not expect a greater deterioration of this portfolio, since at the end of 2021 most of the moratoriums had already expired.
Regarding ICO loans, the supervisor puts at 20% those that are in “special surveillance”, with a growth of more than three points only in the second half of the year. The figure rises to 35% in sectors such as hospitality. “Some measures adopted to mitigate the negative economic effects of the war in Ukraine would alleviate, in particular, the financial pressure on companies with financing backed by the ICO,” he says about the shock plan approved by the Government and that Congress must validate this Thursday .
Beyond the evolution of loans and how it can affect banks’ risks, the supervisor concludes in its Financial Stability Report that Spanish entities have reaped an increase in profitability and solvency over the past year. This has occurred fundamentally because fewer provisions have had to be made than those made in 2020 and which weighed down the accounts of the banking groups. In addition, the agency highlights that the massive closures of offices and layoffs of workers have led to a “convergence” with the banking sectors of other European countries.
The report analyzes other factors linked to the financial sector, such as the risks linked to the brick. From this document is extracted the warning known a few days ago about the exposure of banks to the real estate sector. “Recent developments in the Spanish real estate market do not reflect signs of pronounced imbalances at the moment,” indicates the Bank of Spain, referring to whether a new bubble is brewing. “However, the still important relative weight of exposures linked to the real estate sector in the banks of our country, and the existence of shared factors that explain the evolution of house prices in the euro area alert to the need to monitor pay attention to this market in Spain”, reflects the supervisor.