The follow-up ratio of financial credit institutions providing consumer loans was 6.35% in October.
In the economic panorama, it does not go unnoticed by anyone that difficult days are approaching. After the first summer in two years without sanitary restrictions and the first post-pandemic Christmas, it seems The January slope will be complicated for many families. “The economy is slowing down and it is predictable that after the holidays we will see a rise in consumer loan defaults that will always be higher than banking,” says Francisco Uría, financial partner at KPMG in Spain. He adds that the assets are well provided and there should be no problems. These companies still maintain the extraordinary provisions made during covid. Continuing inflation and the crisis in energy prices add uneasiness to the economic outlook. “The evolution of default is difficult to predict due to high uncertainty, but banks are already estimating the risk of an increase in default, with a higher endowment in provisions in recent years compared to the European average,” the sources say. Spanish Banks Association (AEB).
The most recent data shows that the default rate of consumer lending financial credit institutions (EFCs) stood at 6.35% last October, nearly doubling the rate of default recorded on loans extended by banking institutions to and from families. It broke the record with 3.77% in the ninth month of the year, breaking its best record since December 2008. Funding provided by the EFC in 2021 totaled €60,733 million in 2021, according to a report by consulting firm PwC for Asnef (National Association of Financial Institutions).
Faced with the recession and bleak economic scenario threatened by 2023, the Bank of Spain warned banks not to reduce their provisions. José Manuel Campa, President of the European Banking Authority, similarly acknowledged that the default rate on European banks at year-end was lower than expected, but assured that there was still a “certain bag of potentially defective assets that could resurface as default” and that some leading indicators are already beginning to reflect this direction. “During the first wave of default they could hold out very well, in a second wave they would have had more trouble. That’s why it’s always important to restructure the most questionable portfolios in a timely manner,” says Eduardo Areilza, director of specialist consulting firm Alvarez & Marsal.
Despite this, the latest data from the Bank of Spain show that the equivalents of all credit institutions It fell slightly to 32,727m euros in October.11 million per month, down 6,099 million euros per year.
The volume of bad loans in October was €46,048 million, 0.59% lower than in September and 13.06% lower than in October 2021, Bank of Spain records. Data handled by AEB points to lag of consumer loans at deposit institutions: 4.9%According to the data for the second quarter of the year, it is slightly below the pre-health crisis of 5.6%. The consumer default rate relative to the total loan figure is 0.3%, but it must be taken into account that many businesses remove such loans from their balance sheets because they run the risk of overpaying. “The default rate on consumer loan is always higher than on mortgage, a category that represents a greater financial risk,” says the AEB.
In the case of Banco Santander, the business maintains Santander Consumer Finance as a business unit specializing in consumer credit. Digital Retail Bank NPL ratio, which brings together the segment specialized in retail loans and Open Bank, In September, it was realized as 2.20%, an increase of five points compared to the previous year.. “If the macroeconomic situation becomes complex, it is normal to expect an increase in non-performing loans and we will continue to monitor our portfolios to avoid the impact of an increase in unemployment or consumer market paralysis in 2023.” says Santander Consumer Finance sources.
Since 2014, Financial Credit Institutions (EFC) are no longer included in the category of credit institutions by the Bank of Spain. Non-performing loans extended to companies and individuals by all credit institutions stood at 3.77% in September.If EFCs were included as before 2014, the default would be 3.86%.
trend change
Although the default figures remain quite low, there appears to be a change in trend. The first year without restrictions after the pandemic encouraged consumers to go out and spend the stored savings accumulated during the lockdown.. “There is a change in trend. “Consumers have spent a lot of money in the summer, from trips and vacations to buying electronics, and many will now have a hard time repaying their consumer loans,” explains Montse Cespedosa, director of The Gossip Banker. financial advice that helps consumers restructure their debt. “Both my clients and consumer loan providers say that default or probable default situations are increasing,” Cespedosa says.
“we can see Cycle change at the beginning of 2023. “If inflation and unemployment hit families, we may start to see them use their credit cards to make ends meet,” says Eduardo Areilza of Alvarez & Marsal.
They also share this vision through the financial comparison tool Sincomisiones.org. “It does not look like there will be defaults in the short term, but the gap between the overall rate and the consumption rate is widening, so there is some movement. This does not mean that there are already a large number of unpaid consumer loans, but it is a fact that they are not falling at the same rate as the overall rate (mortgages…). It may or may not be a temporary thing,” explains Gabriel Rodríguez, founder of the Sincomisiones.org portal.
Rodríguez points out that the household savings rate is negative for the first time in three years. “Families are likely to suffer if we take into account inflation and the rise of Euribor. If this situation continues, we may see defaults in consumer loans, which is the weakest point of the entire credit chain.‘, he concludes.
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Difficulties in coping with debts will also affect SMEs (small and medium enterprises). Many of these companies managed to survive the covid-19 thanks to the ICO loans given.. The effect of generalized increases in interest rates and the end of the bankruptcy moratorium on June 30 meant that bankruptcies rose 25% in July, according to a report by Hiscox, an international insurer specializing in corporates.
Although only two out of ten SMEs have applied for an ICO loan, now 45% of them do not know whether they will be able to repay the requested loan on the terms it was given. While up to 3.4% foresee a direct default, 13.1% think the solution is in debt refinancing and 9.8% in restructuring.. 19.2% did not consider taking any measures when the maturity date.