Spanish households and companies continue to pay their debts religiously despite the rise in interest rates. The still provisional data on bank non-performing loans published today by the Bank of Spain put doubtful loans at 3.59% in May, just four hundredths more than a month earlier and still significantly lower than the level registered before the pandemic.
The data is known just three days before the European Central Bank (ECB) analyzes a new quarter-point rate hike, to levels of 4.25%, from which point it should reach what its president, Christine Lagarde, has described as “cruising altitude”. This week the Federal Reserve also meets to predictably raise the price of money to a range between 5.25% and 5.5%.
The data for May place doubtful loans at 42,815 million euros, a figure slightly higher than the 42,553 million a month earlier and 17% lower than that of the same month in 2022. Just five years ago the volume of doubtful loans, which are those in which there is a delay in the payment of interest or principal of more than 90 days, was around 100,000 million euros.
The increase in bank non-performing loans is one of the elements that the ECB observes with a view to reviewing its monetary policy. Despite the containment of delinquency, the credits subject to the greatest risk, known as NPL, are already in the euro zone at their highest level in ten years, according to the estimates of the institution itself.
The current levels in Spain remain at their lowest since December 2008 and are far from the 4.5% that, according to analysts such as those of EY, should be reached in 2023. They also contrast with the 7.79% reached in 2017. When the pandemic broke out, the doubtful ratio was 4.51%.
Delinquency also goes by neighborhoods. The Bank of Spain shows that, in the case of banks and old savings banks, it stands at 3.49%, while among financial establishments it grows faster, up to 6.58%.
Apart from the ability of clients to repay loans, Spanish banks have been shedding NPL loan portfolios in recent years to reduce the risks on their balance sheets. The Alvarez firm
The doubt now lies in the behavior of inflation and its effect on future ECB decisions that further raise the cost of debt. “The underlying price trend remains worrying, but a preliminary determination of whether another rate hike will be necessary in September will likely be rejected, given the new growth and inflation projections expected then,” says Ulrike Kastens, economist at DWS.
