Many are the analysts who have been waiting for a rise in doubtful loans from Spanish banks for some time. This prognosis has not been fulfilled so far, despite the many shocks that our country’s economy has been carrying for a year: the tail end of the pandemic, the impact of the war in Ukraine, high and persistent inflation. Lots of uncertainty. The latest data available – November 2022 – published this week is 3.68% of total credit, the lowest since December 2008. A far cry from the considerable delinquency that occurred in the years of the global financial crisis.
This good piece of information shouldn’t surprise you so much. First, because, as Macroeconomics is taught in universities, it is strongly related to the evolution of GDP and employment. The existing empirical evidence is clear: when GDP contracts and unemployment rises, non-performing loans rise. However, 2021 and 2022 are years of economic growth, despite the uncertainty, and employment has performed reasonably well. It is true that in 2020 there was a very strong contraction in economic activity as a consequence of the covid and the confinement measures and it was hardly noticeable in delinquency either.
The key, in my opinion, is that there was confidence that it was a transitory problem and support was given. The numerous measures applied —ERTEs, ICO loans with public guarantee, among others, and generous aid— were a key lever that allowed us to accommodate this sharp drop in GDP without far-reaching consequences for employment or financial stability. As some of these support measures were withdrawn in 2021 and 2022, it was once again thought that non-performing loans could pick up. It was what the models would predict, but it did not come to pass. After all, they were years of economic growth. Of course, based on the rebound effect after the covid, and supported by the accumulated savings. Other measures and protocols have been important, such as the last one, the agreement on mortgages. A trapeze artist network that has made it possible to withstand the strong headwinds of the credit market in recent years. Little or nothing to do with what happened from 2008 to 2013, when the real estate bubble burst: a notable contraction in GDP and a scandalous increase in unemployment, along with the collapse in the value of real estate assets.
Without complacency, yes. The situation may change and lead to a certain rebound in delinquency. With proper management of financial institutions and supervisory oversight, it should be manageable. Non-performing loans may increase given the sharp slowdown in the economy, where growth forecasts for 2023 are much more modest. If the labor market continues to show resilience, as it has until now, this increase should not be large. However, the rise in interest rates —with a certain upward path—, in an uncertain environment of inflation (even when it is falling) and much less vigorous economic activity will probably end up having an effect. Non-performing credit could pick up in 2023. It would be a surprise if it didn’t.
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