Interest rate rises are not causing the expected increase in bank non-performing loans, which continue to defy expectations and fall month by month. According to data published today by the Bank of Spain, the ratio of doubtful loans to the resident private sector fell again in March, to stand at 3.51%, compared to 3.55% a month earlier.

The data is counterintuitive because at the end of last year the official bodies and the banks themselves were preparing for a rise in default due to the end of the ECB’s zero interest rate policy. However, the current record is the best in fourteen years and if households are holding up the rate, it is, in the opinion of experts, because of employment.

“The key variable is employment,” says Leopoldo Torralba, senior economist at Arcano Economic Research. “Non-performing loans have a lot to do with that. We are recovering well and we are already better than before the pandemic to the extent that there is confidence because there are jobs and savings,” he points out. The occupation of the workers also explains why consumption is having a “reasonably good” behavior.

“The drop in delinquency in families is one hundred percent due to employment,” says José Carlos Díez, professor of Economics at the University of Alcalá. “In the previous crisis it was found that families stopped paying the mortgage when employment insurance fell below half, and in the last year we have not had job destruction,” he says. It also does not lower the price of the house, which would even allow even a mortgagee in distress to sell the house at a slight discount and pay off the debts. Among companies, the “recomposition of margins” supports the payment of debts.

The current default rate contrasts with that of 4.24% in March of last year and coincides with a sharp drop in the volume of defaults in the last five years. Now doubtful loans amount to 42,214 million euros, less than half of the 97,692 million in 2017, when the default ratio was 7.79%. This scenario has not occurred since 2009, when the Great Recession began to take its toll on family economies and the percentage started the year at 3.37% and closed it at 5.08%.

The thesis of employment as the fundamental cause of low delinquency is also supported by the banks themselves. “The fundamental thing is that employment continues to grow and that unemployment is falling. The economy is strong and prospects are improving,” they say from the banking entities, which in 2020 presented losses in some cases when making provisions in anticipation of a scenario adverse event that has not occurred.

Doubtful credits are those that accumulate at least three unpaid installments. The current balance is 18% lower than that registered a year ago, after falling almost 1% between February and March. The financial balance now for banking entities is 1.2 trillion euros.