Average Financing Costs For Spanish Companies At Historic Lows

Spanish companies' cost of financing at minimum lowsSpanish business centre in Madrid

The high levels of debt Spanish non-financial firms accumulated during the expansionary phase before the beginning of the last crisis caused significant increases too in the interest costs they had to pay, reaching in 2008 11% of the gross added value generated by this sector, more than double what it had been five years before (4.9%).

With the beginning of the recession, a growing number of companies began to show signs of problems in confronting their financial obligations with the incomes generated by their ordinary activity. Many companies were obliged to deleverage allowing them to sanitise their balance sheets and alleviate the excessive financial charges they had to support.

The information held by the Centre of Balances of the Bank of Spain, which is one of the divisions of the Statistics Department, confirms this development: the ratio which estimates the average cost of financial debt reduced between 2008 and 2016 (the last year for which data is available) by more than 50%, so that the average value want from 5.9% at the beginning of this period to 2.7% in 2016.

The disaggregated information, however, shows a significant variety in the evolution of these costs in the period analysed. Thus, even if the vast majority (around 80%) experienced falls in this indicator, the size of the fall was uneven, with a fall of up to 2% most common (observed in 23% of the companies), followed by falls between 2% and 4% (21%) and between 4% and 6% (17%).

The savings generated by the cumulative reduction in these costs had a beneficial effect, for the majority of the companies, on the profitability of shareholder equity. Specifically, in almost almost 60% of these companies it translated into a growth of up to 2% in this indicator, and in 27% a greater improvement.

Given the current reduced level of financial costs, which have reached historic minimums, and the posible normalisation of monetary conditions in the medium term, there are limits on how much further they can be reduced, and it is not inconceivable that they might increase in the future.