The follow-up ratio of financial credit institutions providing consumer loans was 6.35% in October.
In the broader economic scene it is hard to miss the signs that tougher days lie ahead. After a summer free of health restrictions and a first post pandemic Christmas, many families may face a thorny January. Francisco Uría, a financial partner at KPMG in Spain, notes that the economy is slowing and forecasts that after the holidays consumer loan defaults will likely rise beyond those seen in traditional banking. He adds that lenders still hold ample buffers from the covid era and that credit risk provisions remain substantial. Persisting inflation and elevated energy costs continue to cloud the outlook. While the path of default rates remains uncertain amid high volatility, banks are already budgeting higher reserves than the European average to cushion potential losses, according to sources in the Spanish Banks Association AEB. [Citations: KPMG Spain partner assessment; AEB commentary]
The latest figures show that the default rate for consumer lending by financial credit institutions EFCs stood at 6.35% last October, nearly double the rate for loans issued by traditional banks to households. This metric peaked at 3.77% in September, marking the strongest level since December 2008. In 2021, EFCs extended €60,733 million in funding, a figure reported by PwC for Asnef. [PwC Asnef report; EFC performance]
Facing a potential recession and a bleak outlook for 2023, the Bank of Spain cautioned banks against trimming their loan loss provisions. José Manuel Campa, president of the European Banking Authority, acknowledged that European bank defaults for year-end were lower than feared but warned that a reserve of potentially defective assets might still surface as default risk, with early indicators already turning upward. Eduardo Areilza of Alvarez & Marsal emphasizes that timely restructuring of questionable portfolios remains critical as the default cycle evolves. [EBA remarks; Alvarez & Marsal analysis]
Bank data reveal a slight dip in the overall balance for all credit institutions to €32,727 million in October, with a monthly fall of 11 million and an annual drop of 6,099 million. The bad loan stock for October reached €46,048 million, down 0.59% from September and 13.06% from October 2021, according to Bank of Spain records. AEB data point to a lag in consumer loans at deposit-taking institutions at around 4.9%. Second-quarter figures show the consumer default rate hovering near pre health-crisis levels at 5.6%, while the default rate relative to total lending sits at about 0.3%. Many businesses remove such loans from their balance sheets to avoid overstating risk. AEB notes that consumer loan default tends to be higher than mortgage default, which carries greater financial risk. [Bank of Spain; AEB data summaries]
Banco Santander maintains Santander Consumer Finance as its consumer credit arm. The Digital Retail Bank and NPL ratio, which unites the retail loan segment with Open Bank, recorded 2.20% in September, up five percentage points from the previous year. In a cautious tone, Santander Consumer Finance stresses that a tougher macroeconomic climate would likely push up non-performing loans and that portfolio monitoring must continue to shield against unemployment shocks or a softened consumer market in 2023. [Santander Consumer Finance statements; Open Bank integration note]
Since 2014 the Bank of Spain no longer classifies Financial Credit Institutions as a separate category within credit institutions. Overall, non-performing loans extended by all banks to companies and individuals stood at 3.77% in September. If EFCs had remained in the old category, the rate would have been 3.86%. [Bank of Spain classifications]
trend change
Despite the generally moderate default levels, a shift in the trend appears evident. The first year after lockdown restrictions ended saw consumers release stored savings and ramp up spending. Montse Cespedosa, a financial advisor at The Gossip Banker, notes that there is a shift in the pattern of defaults. Consumers who enjoyed summer luxuries from trips to electronics may now struggle to repay their consumer loans. Both clients and lenders report rising default or near-default scenarios as a shared concern. [Market commentary; practitioner insights]
Early 2023 signals a cycle change, with some experts suggesting inflation and unemployment could push households toward using credit cards to bridge gaps. Eduardo Areilza from Alvarez & Marsal echoes this view. A collaborative outlook is also seen in the financial comparison platform Sincomisiones.org. While short term defaults do not appear imminent, the spread between overall rates and consumer-specific delinquency is widening, indicating movement rather than a clear surge in unpaid loans. The founder Gabriel Rodríguez points out that household savings turned negative for the first time in three years. Inflation and Euribor rises could pressure families, potentially lifting consumer loan defaults as the credit chain weakens. [Sincomisiones.org observations; Areilza commentary]
ICO loans
Related coverage shows that debt pressures also affect small and medium enterprises. Many SMEs survived the Covid era thanks to ICO loans, but higher interest rates and the end of the bankruptcy moratorium on June 30 contributed to a 25% rise in bankruptcies in July, according to Hiscox. Although only about two in ten SMEs have accessed an ICO loan, 45% remain unsure if they can meet loan terms. Forecasts show 3.4% expecting direct defaults, 13.1% considering debt refinancing, and 9.8% looking at restructuring. A sizable 19.2% have not planned any measures by maturity. [Hiscox SME report; ICO loan analysis]