Spanish Banks’ Loan Pricing Continues To Fall

Bank of SpainBank of Spain

There has been an increasing reduction in the pricing of corporate loans in Spain. Currently loan pricing is at 2010 lows, according to the  Bank of Spain’s May bulletin.

The interest rate on new loans granted to non-financial companies of up to €250,000 stood at 3.02% in May compared with 3.74% a year earlier; for loans between €250,000- €1M, the interest rate fell to 1.9% from 2.43%; and for loans over €1M this dropped to 1.71% compared to 2.43% year-on-year. This pricing situation could be a response to the strong competition and liquidity resulting from ECB’s unconventional monetary policy.

ACF analysts highlight the downward pressure on asset prices. In fact the price of new loans declined by 51 basis points in 2015. As a result, the rate applied to new loans in May 2016 was slightly below that in existence at end-2015. ( 2.80% vs 2.82%).

Despite the fact mortgage and corporate loans’ yields have continued to fall in the first few months of 2016, consumer credit and others are increasing. ACF says:

“We believe that given the Spanish banking industry’s current low profitability, combined with the Bank of Spain’s warning that the entities should include the total cost of loans in the price given, banks should apply a more rational strategy in pricing assets to avoid an assets war like the one in 2015, which is very harmful”.