Spanish banks have tightened credit conditions for families and companies. In recent months, and also at the beginning of 2023, entities have raised the criteria for accepting applications for mortgages and loans, in the midst of a crisis due to the inflationary spiral and the accelerated rise in interest rates. The financial sources of the large banks consulted explain that they are applying more restrictive criteria when granting loans, especially mortgages, but also those linked to consumption and business investment. Likewise, they note a drop in demand in recent months, also anticipating this trend at the start of this year.
In reality, they indicate that it is not a unilateral decision to restrict credit, but that they have been conditioned by the European Central Bank. On the one hand, they point to the turn that the supervisor made in monetary policy a year ago, executing continuous increases in interest rates to try to curb high inflation. In that sense, they say that the higher rates have led to an increase in the price of money that causes many clients now to be unable to access financing.
On the other hand, they detail that the regulations to which the sector is subject orobliges entities to grant responsible credit. This implies that the banks must carry out an in-depth evaluation of the solvency of the clients to ensure that they will be able to face the payment of the installments throughout the life of the loan. In this sense, they are applying stress scenarios on clients taking into account an environment of rates of around 4%, which is the framework in which the forecasts of the ECB’s research service move.
“Financial entities are being prudent when it comes to granting credit because they fear the arrival of a recession or that the economy will continue to slow down. Let us remember that the Government has been reducing its growth estimates throughout 2022 and that the ECB has done the same for 2023. In a situation of economic slowdown and, above all, in the event of a recession, the risk of defaults increases and the banks want to reduce, as much as possible, this risk”, affirms Victor Alvargonzalezdirector of strategy at consulting firm Nextep Finance.
The ECB itself recognized in its last quarterly report on loans that Spanish banks had tightened credit considerably during the third quarter of the year and that it forecast tougher conditions for the final stretch of the year and the beginning of 2023. Usually, at the time of Applying more restrictive criteria, entities tend to set higher interest rates in the case of consumer credit, greater guarantees in credit to companies, and offer a lower percentage on the price of housing in the case of mortgages.
spare ammunition
All in all, the credit crunch has not yet been felt too much in new loans. According to the latest data from the Bank of Spain, which include figures up to November 2022, new mortgage loans increased volumes by 16.8% compared to the previous month, up to 5,633 million euros. Consumer credit rose 4.4%, up to 14,502 million; and credit to companies, 3.3%, up to 29,114 million. Banco Santander highlighted yesterday that it led ICO loans in 2022, with 475 million in financing for companies and entrepreneurs. Financial sources explain that with the perceived drop in demand in recent weeks and the tightening of conditions, there have been two effects.
On the one hand, they find a greater number of credits that are not carried out because customers do not meet the most demanding criteria. On the other hand, they also explain that the most solvent clients are accelerating to close the financing as soon as possible and avoid a new rise in interest rates that makes the price of money more expensive. Therefore, the volumes manage to maintain themselves in absolute terms.
“Since banks are now charging much more for loans thanks to the rise in rates, they can afford to give fewer loans, since less credit activity is offset by an increase in the margins offered by each loan that is active or that is currently granted”, adds Alvargonzález.
Also, they have ammunition to irrigate credit to families and companies. Although banking supervisors require customers to carry out the aforementioned solvency analysis by applying a stressed rate scenario, banks have barely experienced a rise in non-performing loans, which at the end of October (latest data available) fell to 3.8%, its lowest level since December 2008. The banks consulted assure that they will collaborate to avoid a new slowdown in the economy, at a time of slowdown in activity.