The financing provided by banks to individuals and companies, key to keeping the economic machinery running, is increasingly facing an unfavorable environment. According to the Bank Loan Survey published this Wednesday by the Bank of Spain, “the percentage of rejected applications increased in all modalities.” In other words, Spanish entities respond more and more with a refusal to those who knock on their door in search of capital to launch a project or save a business, as well as to those who need extra help to acquire a home or face their consumption expenses. .
In his note, the supervisor attributes this decline during the first quarter to the fact that banks perceive more risks and tolerate them less. Specifically, he points to the deterioration of the macroeconomic outlook and the solvency of borrowers, as well as the increase in their financing costs. Although he does not delve into these issues, the context is riddled with uncertainties. High inflation devours savings, increases in interest rates increase the mortgage bill and make them more expensive for those who want to request them, and turbulence in the banking sector, still latent after the collapse of several regional entities in the United States and the Credit Suisse bailout, are not helping the money flow with confidence.
The offer contracts, but also the demand for loans, both from companies and households to buy a home, consume or for other purposes. “This drop in demand would have been particularly pronounced in the case of loans to families for home purchase,” the text warns. The slowdown is moving little by little to the figures. After a very favorable 2022, the latest data from the National Statistics Institute already indicates that 2% fewer home mortgages were signed in February than in the same month last year. And conditions are not improving enough, with the Euribor closing April at an average of 3.76%.
The drop in credit applications is exceeding the perspectives of the entities themselves, except in the case of loans for consumption and other purposes, where they coincide with the negative expectations that they already expressed three months ago. The causes differ depending on whether they are private clients or companies. In the first case, the Bank of Spain believes that lower consumer confidence in the economic situation has an influence, and in the second, companies are thinking more about it due to the increase in interest payments that now implies borrowing, and the reduction the rate at which they are investing.
Paradoxically, Spanish banks have not been severely penalized by this credit restriction. According to the supervisor, the rate hikes undertaken by the European Central Bank would have favored them, leading to an increase in profitability in the last six months “due to the increase in net interest income.” In other words, their margins are growing thanks to the fact that their clients with variable loans are paying more interest.
For the second quarter of the year, the prospects are bittersweet. The financial entities surveyed expect another general reduction in supply, but more moderate than that of the first quarter, and a drop in demand for credit, but also of less intensity than that registered in the first three months of the year.
The trend is not only Spanish. The ECB warned on Tuesday that the fall in demand for credit from companies “is the strongest since the global financial crisis”, and the tightening of credit exceeded expectations.
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