The Bank of Spain has observed less dynamism in the flow of new financing to households and companies during the second part of the year as a result of the tightening of financing conditions, as stated in an article published this Friday and entitled revolution financing and of bank credit to the non-financial private sector. Second semester of 2022′.
This work aims to analyze the conditions and volume of financing received by households and companies and to quantify the risk assumed by deposit institutions through loans to these two sectors.
In a context of interest rate hikes by the European Central Bank (ECB), the Bank of Spain points out that the cost of financing the private sector has continued to rise in recent months. Specifically, the cost of business financing through the issuance of long-term fixed-income securities has risen by slightly more than 50 basis points between June and December 2022, and has stood at 4.4%.
It has also noted the interest rate of the new bank credit for the purchase of housing, in this case, 95 basis points between June and November (latest data available), and that of consumer credit has done so at around 65 basis points, while that the increase in the cost of new bank financing granted to productive activities has been more intense: between 120 basis points in loans to individual entrepreneurs and 155 basis points in new credit operations granted to companies with imports of more than one million of euros.
Added to this tightening of financing conditions is the perception, on the part of the banking sector, of a decrease in the demand for credit by households and companies, in such a way that in recent months, the Bank of Spain has observed a moderation in the volumes of new financing received by households and companies in most segments, in terms of cumulative three-month seasonally adjusted flows.
Thus, the volume of new credit operations granted to households for the purchase of housing shows a certain decrease, which has intensified since October. The amount of new loans granted to families for fines other than home purchase and consumption has also fallen. In contrast, the flow of new bank credit for consumption has continued to increase in recent months, although in November it was still 13% below pre-Covid-19 crisis levels.
With regard to new bank financing for productive activities, the Bank of Spain points out that it also fell across the board during the last months of last year, according to the information available up to November.
However, it highlights that the raising of funds in the capital markets through the issuance of fixed income between June and November 2022 was at high levels, an evolution that has been conditioned by the “bulky volume” of short-term issues.
BANK CREDIT ACTION
The Bank of Spain also includes that the outstanding balance of credit to the private sector resident in Spain stood at 1,172 million euros in September 2022, after falling by 0.9% in quarter-on-quarter terms.
However, this decrease was “significantly less” than the typical average contraction that is usually observed in the third quarter of the year, both in the years before the pandemic, with an average drop of 1.6% in the period 2014-2019 , as in those immediately after the start of this, with an average decrease of 1.6% also in 2020-2021, a situation that is due, especially, to the behavior of the stock of credit for business activities.
Thus, year-on-year nominal growth recovered a positive value, increasing by 0.6%, compared to the year-on-year decrease of 0.1% in June 2022. However, the supervisor affirms that the available data for the 2022 quarter anticipate a correction of this expansion.
DOUBTFUL LOANS AND ON SPECIAL SURVEILLANCE
The article also analyzes the evolution of doubtful loans (stage 3) and those under special surveillance (2). Doubtful loans continued to fall and stood at 43.4 billion euros in September, after falling 3.5% in the third quarter of the year and 13.2% cumulatively in the last 12 months. In addition, since December 2019, doubtful loans accumulate a decrease of 20%.
For their part, loans under special surveillance fell by 3.3% in the third quarter of 2022, accumulating a year-on-year decrease of 13.1%, to stand at 81,900 million euros.
Despite this correction, the Bank of Spain indicates that the volume of credit under special surveillance is still 22.9% higher than before the pandemic, for which reason the supervisor indicates that “latent risks persist” for credit quality, despite the good performance of all doubtful loans.
Likewise, refinanced or restructured loans, which are also usually identified with a higher risk -50.2% of them were classified as doubtful in September 2022-, also decreased in the third quarter of 2022, 3.6% to 52,600 million euros, representing an interannual decrease of 12.4%.
“These loans grew significantly during 2021, due to the consequences of the health crisis, but they have been reduced, reaching 7.3% below the figure observed in December 2019 in September 2022,” indicates the supervisor.
The Bank of Spain has observed the greatest relative deterioration in loans granted with an ICO guarantee, whose doubtful ratio stands at close to 6% in September 2022, compared to levels of this ratio of 3.5% and 0.5% in December 2021 and 2020
The article points out that the end of most of ICO’s loan deficiencies during the second quarter of 2022 could further increase its problematic asset ratios in the future, although there would still be no evidence until the moment of confirmation. this negative effect.
The most affected sectors, such as hotels and restaurants or transport, continue to present a higher proportion of problematic assets in September 2022, although they also show a downward trend like the rest of the sectors.