The ghost of the 2008 crisis, still very much alive in the collective memory due to non-payments and evictions, still does not appear. The threat has been palpable for almost a year now, when the European Central Bank (ECB) began raising interest rates to fight inflation. Some increases that have been very abrupt, more than ever, which puts vulnerable families with bank debts in trouble. The entities, in this context, carry out exhaustive monitoring of default, although the rate is surprising everyone: in March it fell again, to 3.51%, its minimum since December 2008, as published this Friday by the Bank of Spain.
These are historically low levels. For example, in the final part of the Great Recession it reached 13.62% (December 2013). This is a relevant metric, especially since default has traditionally been one of the best thermometers and warning systems for the arrival of economic crises. If activity cools, defaults grow. On the other hand, unlike what has happened in the past, delinquency remains at bay despite the slowdown in the economy.
In addition, the experts refer to another key to this low level of defaults: the strength of the labor market. “Households usually bear the financial burdens as long as they keep their job. Even when labor income is reduced, for example, as a result of inflation. The loss of employment is what strongly increases the probability of non-payment”, argues Raymond Torres, director of Coyuntura de Funcas. In other words, the mortgage is the last thing to go unpaid and payments are only neglected when you lose your job and your income drops dramatically.
According to data from the Bank of Spain, delinquency in the financial sector has fallen by 0.73 points in the last year, from 4.24% in March 2022. On the other hand, in the volume of doubtful loans, the figure dropped to 42,214 million, minimum since July 2008, almost 9,300 million less than a year before. This contrasts with the upward trend in the 12-month Euribor, on the back of rate hikes, which is now close to 4%.
Regarding the volume of credit granted by banks, the first quarter closed at 1,203 billion euros, below the 1,219 billion in December. Although if compared with the previous month, in March loans grew by 3,572 million.
By type of entity, the delinquency of banks, savings banks and cooperatives closed the third month of the year at 3.4% (below the 3.46% of February). On the other hand, in financial credit establishments the rate rose to 6.48% in March, higher than the 6.04% recorded in February. According to data from the Bank of Spain, the provisions of all credit institutions fell to 30,513 million euros in March, with a decrease of 1.62% compared to the previous month.
The supervisor includes among the doubtful those credits in which there has been a non-payment of the principal or interest for a period of more than 90 days, or when it is considered unlikely that the debtor fully complies with its obligations, although there are still no unpaid amounts. The cited figures include a methodological change in the classification of Financial Credit Institutions (EFC), which since January 2014 are no longer considered within the category of credit institutions. Without this change, delinquency would have stood at 3.6%.
Shield for mortgaged
All in all, the evolution of defaults is being more positive than expected. Despite this, the Government rolled up its sleeves at the end of last year and negotiated with the banking employers an extension of the Code of Good Practices to protect vulnerable families with variable rate mortgages. The Executive then calculated that this social shield could reach up to one million debtors, although the Bank of Spain has reduced that figure to some 200,000 households that will be able to benefit effectively, according to its latest Financial Stability Report.
According to the figures published by the supervisor this Friday, 52% of the total credit is at a variable rate. In other words, it is the part that will pay the most interest based on the level of the Euribor —the index to which most variable mortgages refer—, so debtors with more financial straits and this type of loan may suffer the blow. More if possible with inflation making a dent in their purchasing power. Hence, in the middle of the electoral campaign, various proposals have followed one another to counteract this effect, the last one from Podemos.
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