Santander Credit Research | The Spanish government approved a fourth tranche (€20 billion) of the €100 billion worth of guarantees for corporate loans which was announced on 24th March. This is part of the economic aid package to mitigate the negative impact of the containment measures imposed due to the Covid-19 outbreak. The new tranche approved will be aimed entirely at guaranteeing loans to small and medium sized enterprises (SMEs) and the self-employed.
With this fourth tranche, the government will have aleady approved the use of €84.5 billion of guarantees, of which about €60 billion correspond to those for SMEs and self-employed. The approval of this tranche earmarked entirely for SMEs and self-employed follows the approval of another two for the same amount on April 10th and March 24th. However, only the last two have focused exclusively on loans to SMEs and self-employed, while the first tranche was divided equally between guarantees for loans to large companies and for SMEs. On May 5, the government also approved another tranche of guarantees amounting to €24.5 billion for SMEs (€10 billion), large companies (€10 billion), promissory notes negotiated on the domestic market ( €4 billion) and a small part ( €500 Bn) for other types of guarantee corporations.
As we have mentioned in the past, we believe the Spanish government’s line of guarantees supports the quality of Spanish banks’ assets in the context of the general economic package. In particular, it ensures that the liquidity of the corporate sector does not dry up as a result of the foreseeable economic slowdown due to the quarantine measures imposed in Spain. As is the case of packages launched by other European governments, Spain’s guarantee line, in combination with the ECB measures providing abundant cheap liquidity, is proving to be very effective. It is achieving the objective of ensuring the flow of credit to the economy in relatively stable financial conditions. According to ECB data, corporate lending in Spain grew by 2.1% in March 2020, after several years of decline, with the exception of a few short periods when it was around 0%. Meanwhile Spanish banks increased their net lending from the ECB by €26 billion.
The data for the first quarter published by the banks on the growth of corporate loans (which therefore includes the months prior to the availability of the public aid package) suggests that growth at some institutions exceeds the system average indicated by the ECB. (For example, loans granted to companies in Q1’20 grew by 9.1% a year at Bankia, 6.9% a year at Bankinter and 3.1% a year at CaixaBank). Meawhile, lending rates to these companies remained relatively stable in Spain, at 1.7% in March, according to the ECB. These trends can be expected to continue, as the government releases the remaining part of the guarantee line. Given that the changes introduced by the ECB in March regarding the rules on collateral make loans guaranteed by the government eligible for discounting in central bank instruments, lenders will continue to benefit from cheap financing for this type of loan.
It should also be noted that since over 80% of the total earmarked in the economic support package has already been allocated in just three months, there could be additional demand for corporate credit beyond the limit of the existing government guarantee line. That said, this may not be fully met by the banking system if it does not benefit from government support.