The ECB’s interest rate hikes have boosted bank profits after years of poor profitability, but the change of scenery has its counterpart. Customers are now suffering from a growing increase in the price of debts and this has forced the institutions to strongly increase provisions in anticipation of an increase in delinquencies.
In the first part of the year, the six large Spanish banks listed on the Ibex added 10,868 million euros in provisions to deal with possible inclement weather, which represents an increase of 27% compared to 8,537 million in the previous year, according to a report by the consultancy Accuracy.
It is an amount considerably higher than the joint earnings of the six banks, which are Santander, BBVA, CaixaBank, Sabadell, Bankinter and Unicaja, of 5,373 million in the semester, 49% higher than a year ago. They have also achieved, despite the fact that the entities continue to have liquidity, the Achilles heel that precipitated the collapse of Silicon Valley Bank and Credit Suisse.
The ECB warned last week that the short-term outlook for the economy has deteriorated due to a contraction in demand. The central bank says tightening funding conditions are the cause of the trend, which may be key in determining whether it will raise interest rates beyond 4.25%.
Among the Spanish banks, the only ones that have not increased provisions have been Unicaja and Sabadell, the latter due to the positive impacts on the property portfolio and litigation. Santander, on the other hand, has strongly raised provisions for insolvency in anticipation of worse customer behavior, especially in the United States. They have gone from 5,770 million a year ago to 7,426 in the first half of the year. It is an increase of 28%.
BBVA has increased provisions by 36%, up to 2,087 million, against CaixaBank’s 19%, up to 556 million, and Bankinter’s 26%, up to 193 million. In the case of CaixaBank, these allocations actually fell in the second quarter compared to the first due to the improvement in the macroeconomic outlook in Spain, but the picture for the semester as a whole continues to show increases.
For now, these movements are part of the preventive maneuvers for the foreseeable arrival of clouds that have not yet appeared on the balance sheets of Spanish banks. Santander’s delinquency rate has remained at 3.1%, while BBVA’s and CaixaBank’s have fallen, in the first case from 3.7% to 3.4% and in the second , from 3.1% to 2.6%. It has risen, on the other hand, in Sabadell, up to 3.5%, and in Unicaja, up to 3.6%.
There is another alarm light that also remains off. When a loan becomes a risk of special surveillance it is calculated as stage 2, and when the risk is doubtful, it goes to stage 3. These are the two steps prior to default, which have their own accounting drawers and which allow banks anticipate danger. At the end of the first semester, stage 1 and stage 2 of the banks totaled 226,130 million, just 367 million more than a year ago.
Spanish banks have also taken advantage of the semester to make allowances for insolvencies that are much higher than those of other European entities. The German Deutsche Bank has just parked 800 million, compared to the 100 million of the Italian Unicredit, the 300 million of the Dutch ING, the 1,300 million of the French BNP Paribas and the 900 million of the British Barclays.
