The Spanish financial system responds better than the euro zone as a whole in terms of credit quality. The entities of our country have lowered both doubtful loans and loans under special supervision, those that have not yet suffered defaults but there are indications that there may be, in the last year. Specifically, regarding loans with risk of default, the Spanish financial sector has stopped monitoring a credit volume of 17,100 million euros. In this way, the current volume that banks have in special surveillance loans is 191,200 million euros as of June 2022, compared to the 208,300 million that it had at the end of the first half of 2021, which represents a reduction of around 8%. Thus, according to the latest data published yesterday by the European Banking Authority (EBA), the credit ratio under special surveillance of Spanish entities fell from 7.3% in June 2021 to 6.7% in June 2022.
The national financial sector is situated with this ratio below the average of entities in the euro zone, which stands at 9.5% the volume of loans under special surveillance. In fact, European entities, as a whole, have increased the volume of loans at risk of default by 14% in the last year, reaching 1.48 billion euros as of June this year, compared to 1, 2 billion from the same period of the previous year.
Spain is thus well below the risk levels of the large European countries. As an example, the German financial sector has 10.8% of credit under special surveillance, compared to 8.4% a year ago. France’s ratio is 10.3%, which also represents a significant increase in credit risk compared to 8.4% in June 2021. Belgium also increases loans to monitor, which previously represented 10.8% and now 12% or Italy, which goes from 13.4% to 13.6%.
In line with the good performance of banking in our country, the governor of the Bank of Spain, Pablo Hernández de Cos, recognized last Tuesday at the 5th Banking Forum organized by this newspaper, that the quality of bank balance sheets “has continued improving through the second quarter of 2022.” De Cos assured then that the loans under special surveillance, that is, those whose creditors continue to meet their financial obligations but that show some sign of potential deterioration, also intensified their rate of correction, although “they are still above pre-pandemic records”. “Logically, it is in the sectors most affected by the pandemic and by the rise in energy costs that the greatest vulnerabilities are concentrated,” she specified.
Delinquency situation
The case of non-performing loans in the euro zone is the opposite and it has decreased in the last year. The default ratio as of June 2021 was 2.3% and in the same month of this year it is 1.8%. The Spanish financial sector, which brings together entities beyond the traditional credit banks, has also been in line with this decline, lowering the NPL ratio in that period from 3.1% to 2.8%, according to data from the EBA , up to 78,900 million euros. However, at this rate, the national sector remains in delinquency well above the average of the euro zoneonly surpassed by eight countries: Greece (5.2%), Poland (4.3%), Hungary (3.7%), Cyprus (3.6%), Bulgaria (3.5%), Portugal (3.3%), Croatia (2.9%) and Romania (2.9%).
Given the risks for the banking system that could be brought about by a worsening of the euro zone economy, and also of the Spanish economy, due to the rise in interest rates, persistent inflation and the rise in prices of raw materials and energy , European and national supervisors insist on entities to be prudent in their provisioning policysince although delinquency is falling, they anticipate that the deteriorations will begin to be reflected in a two-year scenario.
The national bank, on the contrary, assures that, for the moment, no deterioration is noticeable and, although it admits that the first problems will come from the side of micro-SMEs, SMEs and the self-employed, they assure that the sector is protected since it has not used the bulk of the provisions made during the pandemic. In fact, the six Spanish listed entities have reduced the provisions for credit losses by 22% from June 2021 to June 2022 in their national activity, to place them at 2,100 million. Supervisors also call for caution in capital strategy.
Outperforms the EU
The Spanish financial sector exceeds the average profitability of the European. Specifically, the return on capital (ROE) of the banking system in our country is stood last June at 10.3%, compared to 7.9% on average for the euro zone sector. However, in the case of Spain, it represented a decrease compared to the ROE of 11.9% in the same period of the previous year. The country whose banks have the worst ROE is Malta, negative with -4.2%, while at the other extreme is Slovenia, with 21.9%.
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