Spanish households reduced more than 2.7 billion in loans for house purchases in January, in the midst of the rise in the Euribor, and reaching a volume not seen since May eight years ago.

The outstanding mortgage balance accelerated its fall in January. All the signs are that the Euribor will continue to be on the rocks for the rest of the year, as the European Central Bank (ECB) will have to be more aggressive if it wants to tame an inflation rate that still shows no signs of slowing down. And with the fear that mortgage repayments will continue to rise, families have opted to amortize mortgages as a measure of protection against their escalation and to save themselves an increase in interest, which is already eating into disposable income.

Thus, according to data from the Bank of Spain, in January, the outstanding mortgage balance decreased by €2,758 million, to €508,199 million, 0.54% less than in December 2022. This is the largest month-on-month reduction since May 2015, when households repaid €2,798 million. If the sum of December and January are taken into account, this volume fell by just over €5 billion (in total €5.207 billion). Moreover, the reductions in December and January are equivalent to those experienced between August and November 2022, months in which this trend could already be seen.

Everything points to the fact that the outstanding mortgage balance will continue to fall throughout the year. At the same time, so will the volume of new mortgages granted. Thus, according to data from the supervisory body, 2022 ended up exceeding 2021 (with €62,220 million granted compared with just over €59,000 million in 2021), although at the start of the year there has been a decrease compared with December, of just over €4,100 million, the lowest figure for the whole of 2022 (and in line with August due to lower activity).

And except for the months of August, we would have to go back to 2020, the year of the pandemic (where the granting of credit was impacted by restrictions not only on mobility, but also by greater caution on the part of banks) to see similar figures. 

This is nothing new; financial institutions were already expecting a slowdown in lending for house purchases at the beginning of the year, which would last throughout 2023. If we add to this a contained unemployment rate, this is yet another reason that financial institutions can use to avoid having to significantly increase provisions to cover doubtful loans. Indeed, the Bank of Spain has also noted a further tightening of access to credit.

Original Story: La Información | Cristina Casillas 
Photo: Photo by Philipp K in FreeImages
Edition and translation: Prime Yield

With European Central Bank policy makers preparing to hike interest rates yet again at their March meeting, Spanish banks have been paying their customers even less for their savings.

Spain’s lenders paid 0.37% on new household deposits with an agreed maturity of as long as one year in January, down from 0.42% in December, according to ECB data. By comparison, the rate for the savings of French families jumped to 2.34% from 2.13%, while Dutch banks paid 2.03%.

The trend for Iberian savers to get paid less is also seen at Openbank, the digital banking business that’s operated across several European markets by Banco Santander SA, Spain’s biggest lender.

A Spanish or Portuguese client earns a maximum annual rate of 0.2% on the savings account at Openbank, while a customer in the Netherlands can earn up to 1.5% for parking as much as €200,000 ($212,540) in a similar product, the bank said in response to questions. An account at Openbank’s German franchise pays 1%.

The issue of what lenders pay for savings is important because encouraging consumers to save instead of spend is key to the ECB’s efforts to bring inflation to heel. A further hike of 50 basis points in March — described as very likely by ECB President Christine Lagarde — would take its rate increases since July to 350 basis points.

“If credit is getting more expensive but savings are not getting the benefit, the transfer mechanism for monetary policy is not being fully employed,” Angel Talavera, head of European economics at Oxford Economics, said by phone. “Banks are just making more money and their balance sheets are getting stronger.”

Spanish lenders such as Santander are awash with customer funds and under no immediate pressure to offer more to attract savings.

“What really works in an economy is competition so we are in very competitive markets and we are adjusting to each market,” Santander Chairman Ana Botin said in an interview with Bloomberg TV last week.

Original Story: Bloomberg | Charles Penty and Macarena Muñoz 
Photo:Photo by Victor Iglesias from FreeImages
Edition: Prime Yield

The supervisor detected risk management weaknesses in the European financial sector and launches a review to prepare banks for economic and geopolitical shocks.

The European Central Bank (ECB) has launched a joint action on European banks to review the portfolio of loans classified under special surveillance, according to financial sources close to the single supervisor. In Spain, the five large institutions (CaixaBank, Santander, BBVA, Sabadell and Bankinter) have a stock of almost 155,000 million euros in these loans.

The ECB is concerned about a sudden burst of non-performing loans (NPL) after a historic rise in interest rates and is trying to prepare the ground for banks. Loans under special surveillance, which fall into the stage 2 or phase 2 category, as it is known in financial jargon, are not non-performing, but the risk of default is considered to have grown significantly in recent months.

Official ECB sources point out that the review of loans at risk of default is part of a specific action under the IFRS9 accounting rules. This rule came into force four years ago and obliges banks to classify as doubtful credit loans unpaid for 90 days and to upgrade to ‘stage 2’ only those in which customers have delayed payment of instalments for one month.

At the end of 2022, according to the latest published accounts, Santander is the Spanish entity with the most loans under special surveillance: 69,100 million. These figures are group-wide and reflect the larger size of the group chaired by Ana Botín, which has more than one trillion in assets spread around the world. They represent 6.2% of its entire credit portfolio.

BBVA declares an exposure of 37,277 million in the group, 8.8%, and CaixaBank 30,616 million, almost 8% of the total. Sabadell has a stock of 14,337 million in loans under special surveillance, a weight of 8.4%, while Bankinter has just 2,851 million.

Fears of a sudden burst of delinquencies

The ‘campaign’, as the ECB calls this type of global action, has been going on since the beginning of the year due to fears of a sudden outbreak of non-performing loans. The supervisor, according to the sources consulted, expects a sudden rise in the default rate especially from 2024, when the increase in the price of money starts to have a greater effect on economic activity.

Pablo Hernández de Cos, governor of the Bank of Spain, warned that credit on special surveillance increased by 7% in the case of households last year. “We must not forget the existing risks, some of which have not yet materialised. Institutions must maintain a proactive attitude in risk measurement and in provisioning and capital policy,” the Bank of Spain governor urged.

The ECB has also been calling for months for banks to take a “prudent approach” to managing risks and bolstering provisions, or at least not to release the extra provisions for the pandemic. The head of supervision at the Eurobank, Andrea Enria, points in particular to the deterioration observed in the consumer loan portfolio, which is a thermometer of economic health. “The dynamics of distressed loans (stage 2 loans), whose average ratio increased slightly in 2022, should be closely monitored,” the Eurobank’s head of supervision said at the presentation of the institution’s supervisory priorities.

Bankers complain that rate rises will not only generate extra income, with the price of money at 3%, but will also have a negative side: they will lead to more non-performing loans. For the moment, the big banks have the default rate under control, with an average of around 3%, and the sector rules out a large increase in defaults at least this year.

Original Story: Vox Populi | Rubén Sampedro 
Photo: ECB main building
Edition and translation: Prime Yield

Doubts about the economic evolution in the coming months are clouding all kinds of forecasts. Despite the uncertainty, banks are trying to anticipate and see a possible upturn in non-performing loans (NPL) at the end of the year. However, they are confident that the resilience of employment, as well as the performance of activity, so far better than expected, will clear up any hint of default.

For the moment, bankers’ concerns are at a minimum, in line with the default rate itself. So, at least, they have made it clear these days during the III Finance Observatory organised by EL ESPAÑOL-Invertia.

Remaining at minimum for months – with the latest data available from the Bank of Spain, the default closed 2022 at 3.54%, the lowest level since December 2008 – the level of defaults does not worry the banks too much, neither in the case of companies nor in that of individuals. “So far we are not seeing a problem in NPLs. It remains at minimum levels both in Spain and in Europe”, explained Alejandra Kindelán, president of the Spanish Banking Association (AEB) at this forum.

Behind this evolution lies, in her opinion, the fact that the economy has not slowed down as much as expected (it should be remembered that some months ago recession was taken for granted), as well as the fact that employment “is holding up very well”.

Moreover, says Kindelán, “banks’ management of NPL and credit portfolios is very responsible and much more proactive now. They have learned a lot from the previous crisis”.

That said, the banks do see the possibility of an upturn in NPL in a few months’ time, especially as a result of the poor digestion that certain companies will make of the increase in costs due to high inflation, which in the euro area still stands at 8.6%, as well as the impact that the rise in interest rates may have on activity.

Future upturn

“The main purpose of the interest rate hike is to curb inflation and it does so by cooling the economy. This cooling will also have an impact on the sector, on the volume of assets in the sector, and potentially on non-performing loans,” said Kindelán.

A view shared by Santander Spain. Ángel Rivera, CEO of the group’s domestic subsidiary, pointed out at the same forum that for the moment there is no worrying delinquency rate, which is also helped by the fact that many families have a good savings cushion, to which they contributed a lot during the pandemic.

“At the end of the year the situation will probably get a little worse,” he warned, however, as the moderation in demand for credit, which is already being felt, together with high inflation, will mean that “the tension” will be “greater” then. “We will see a rise in NPL,” he pointed out, although he referred to the third and fourth quarters to see the evolution of the effect of the measures taken by the central banks.For his part, Carlos Ventura, general manager of Sabadell, pointed out that “it would be reasonable to expect that some sectors or companies will not be able to pass on inflation in the same way, especially in energy, and this will generate somewhat more NPL in these niches than would be reasonable”. “We expect [delinquencies] to be moderate,” he added.

Original Story: El Español | Elena Lozano 
Photo: Banco de España
Edition and translation: Prime Yield

The slowdown in mortgages can be seen in the volume of credit granted to families. Against the general trend, there is an indicator that does grow: consumer credit. This section increased by 3.9% in January of this year if compared with the figures for 2022. The rise is also noticeable in Europe, but the Spanish rebound is 25% above what grows in the average for the area of the euro. The combination of inflation, a weaker household structure and a higher number of variable-rate mortgages are behind the data.

In the first month of the year, consumer loans to households represented €95,651 million, which represents an increase of 3.9% compared to the data from a year ago when they stood at €92,046 million. Between the two numbers, the picture has changed drastically with the start of the war in Ukraine and runaway inflation that led the European Central Bank to make a quick turnaround on interest rate policy.

In the presentation of Caixabank’s results, its executives pointed out that they expected a “slight” fall in consumer credit. It should be borne in mind that Caixabank is the leader in the retail segment in Spain. Sabadell, for its part, considered that it could increase its market share in this consumer segment.  

The focus in this type of loans is now on delinquency, which for the moment seems to be contained. The latest data published by the Bank of Spain show that this indicator continued its downward trend, standing at 3.54% at the end of the year, its lowest level since December 2008. Compared with the general indicator, consumer credit delinquency fell to 5.93%.  

Less disposable income

There are several reasons that point to the increase in consumer credit in Spain compared to other European countries. The rise in inflation, although it is true that it affects the whole of Europe, is more noticeable in a market where the economic structure of the family is weaker, say the experts consulted.  

Another factor that may support this upturn is that the Spanish mortgage market is more heavily weighted towards variable-rate loans than in other countries, although in recent years there has been a change in the trend in mortgages granted by banks. In Spain, and in general in southern Europe, there are more variable rate mortgages.  

The sharp rise in the Euribor in recent months, to close February at 3.54%, has also led to mortgage repayments rising, leaving households with less disposable income. 

In any case, the situation could turn around in the coming months. The latest surveys by the Bank of Spain pointed to a rise in the cost of credit and a closing of the tap on the part of the entities, and the banks already pointed out in their results presentations that they expected a slowdown in mortgages in 2023. However, they noted that consumer credit was one of the segments that could experience a less harsh start to the year.

Original Story: Economia Digital | Marta Garijo 
Photo: Photo by Pablo Rodríguez in FreeImages
Edition and translation: Prime Yield

Housing loans stood at €510.422 billion in January, 2.844 billion less than the previous month, according to the Bank of Spain.

The hole that inflation has left in consumers’ pockets was reflected in January in a notable drop in housing and consumer loans to Spanish families. The loss of purchasing power has become one of the biggest challenges for banks, which have begun to be more punctilious when granting loans which, moreover, have become more expensive in the heat of the rise in interest rates of the European Central Bank (ECB).

The aim is to keep non-performing loans (NPL) at bay, having managed to keep them below 3.5% on average despite the economic difficulties resulting from the energy and price crises. So, the requirements for accessing a loan are getting higher and higher. And the profile of the applicant is increasingly scrutinised.

According to data published on Wednesday by the Bank of Spain, housing loans stood at €510,422 million in January, which implies 2,844 million less than the previous month and 4,180 million less than a year ago, after seven consecutive months of declines.

These falls are associated with the slowdown in housing sales, given the sharp rise in the Euribor, which closed February at 3.52%, increasing the price of variable rate mortgages already signed and also new loans in the sector. A rise in prices that is slowing down the purchasing decisions of future homeowners.

Figures from the Bank of Spain indicate that the amount that households spend on housing still accounts for the largest part of all their debts, approaching 73.5% of the total.

Fall in consumption

Loans for accessing a home have not been the only ones to notice a certain slowdown at the start of the new year. Data from the Bank of Spain indicate that household consumer loans fell in January to €95,651 million, down from €96,687 million the previous month.

The figure, however, is still higher than the €92,046 million a year ago, showing that Spaniards have had to resort to this type of loan more forcefully in recent months to meet their expenses.

On the other hand, household borrowing for other purposes amounted to €86.32 billion, down from 89.03 billion a year earlier and around the same figure as the previous month (86.18 billion).

Original Story: El Correo |Clara Alba
Photo: Photo by Svilen Milev in FreeImages
Edition and translation: Prime Yield