No one is unaware that complicated times are approaching in the economic landscape. After the first summer in two years without health restrictions and also the first Christmas since 2019 without limitations due to covid, it seems that the rise in January will be complicated for many families. “The economy is slowing down and it is foreseeable that in the first few months of the year we will see an increase in arrears in consumer credit, which will always be higher than banking”, says Francisco Uría, partner responsible for the financial sector from KPMG in Spain, which adds that the entities have been well supplied and no problems should arise.
These companies still maintain the extraordinary provisions made during covid. “It is difficult to anticipate the evolution of delinquencies due to the high uncertainty, but the banks are already anticipating the risk of an increase with a larger allocation in provisions in recent years compared to the European average”, point out sources from the Spanish Association Banking (AEB).
The latest data available indicate that the delinquency ratio of credit financial institutions (EFCs), specializing in consumer credit, stood at 6.35% in October, almost twice the rate of non-payment recorded to the loans granted by banking entities to families and companies, which marked the tenth month of the year the best record since December 2008 and stood at 3.77%. The financing provided by EFCs in 2021 rose to 60,733 million euros, according to a report prepared by the consulting firm PwC for Asnef (National Association of Financial Institutions).
“The banks could hold out very well during a first wave of defaults, but they would have more problems in a second wave. That’s why it’s always important to restructure the most dubious portfolios in time”, points out Eduardo Areilza, director of the specialist consultancy Alvarez&Marsal.
The Bank of Spain has already warned entities not to reduce provisions. The president of the European Banking Authority, José Manuel Campa, expressed himself in similar terms at the end of 2022, who, despite acknowledging that the default rate in European banks has been lower than expected, warned that there is still “a certain stock of potentially defective assets that can re-emerge as delinquencies” and he assured that some advanced indicators are already beginning to reflect this aspect.
Reduction of provisions
Despite the warnings, the latest data from the Bank of Spain indicate that provisions for total credit institutions fell slightly to 32.727 billion euros in October, a decline of more than 6 billion euros the year.
The data handled by the AEB indicate that consumer credit delinquencies at depository institutions are at 4.9%, according to data from the second quarter of 2022, a little lower than before the health crisis, when it stood at 5.6%. The consumer delinquency rate in relation to the total amount of credit is 0.3%, but it should be borne in mind that many entities keep this type of loan off their balance sheets as they present a greater risk of default. “It is always higher than the mortgage, it is a category that represents more financing risk”, indicates the AEB.
In the case of Banco Santander, the entity maintains Santander Consumer Finance as a business unit specializing in consumer credit. The delinquency ratio of Digital Consumer Bank, which unites the segment specialized in consumer credits and Open Bank, stood at 2.20% in September, a percentage that represents an increase of five points compared to last year. “If the macroeconomic situation becomes more complicated, it is normal to expect an increase in delinquencies and we will continue to monitor the portfolios to prevent the impact that could have an increase in unemployment or a slowdown in consumption”, point out Santander Consumer Finance sources.
Since 2014, EFCs have ceased to be included in the category of credit institutions by the Bank of Spain. While the delinquency of loans granted by the total of credit institutions to companies and individuals stood at 3.79% in October, if EFCs were included as before the year 2014, the delinquency would stand at 3.86%.